It’s a question of motivation
When you receive more than 500 million won ($473,799) per year, you are considered a high-income earner. As expected, many people said they were painfully jealous of the amount of money that others receive. The public was furious that owners of conglomerates, who have been arrested for embezzlement and breach of trust, were paid incredibly well.
Their salaries were made public in accordance with the capital market law, revised in May last year. It was the first such revelation, and was intended to allow shareholders to decide if directors were receiving unreasonably high salaries for their performances.
The justification is hard to refute. Shareholders deserve to know if they are receiving reasonable treatment. Undisputedly, the system was created with good intentions to guarantee the rights of shareholders while improving the transparency of management.
The problem is that not all good intentions produce good outcomes. If the system was aimed at improving shareholders’ rights, then it must benefit them. If the public knows the salaries of top executives, will shareholders’ values go up? The shareholders are probably not interested in it. They are more likely to be interested in the performances of the executives and profits of the company.
The system, of course, has some good outcomes. It can screen executives who are receiving high salaries despite their poor performances. But the market probably reacted first to punish such cases in the top listed companies. Products and services from unethical companies are naturally boycotted by the market. There is no actual merit in enforcing this law, when the market has the ability to screen.
Instead, the system brings about unwanted side effects. Many executives probably choose to become unregistered directors, rather than registered ones. Some shrewd businessmen have already done that. Executives will probably use the loophole to receive salaries higher than 500 million won by serving in several affiliates and split their pay rather than receive a large sum from one company.
A more serious problem will be the difficulty in securing talented directors. Who will want to work for Korean companies if they are criticized for simply receiving high salaries? Other advanced countries, including the United States and Japan, also make public the salaries of top executives. In America, for instance, the information is revealed for the top five executives, while in Japan, it applies to those receiving higher than 100 million yen ($969,000).
The systems are not particularly effective. The average salary of the directors of the 327 companies among the S&P 500 firms in America is 354 times higher than that of a worker. In Korea, the director’s average salary is just 13 times higher than the average worker’s salary.
The high salaries of directors are not something we should be jealous of. It is something we should envy and feel the motivation to follow suit.
JoongAng Ilbo, April 7, Page 30
*The author is a new media editor of the JoongAng Ilbo.
BY KIM JONG-YOON