ed Pay at the top

Exposure must lead to responsible, transparent operation

In a capitalistic society, people get rewards according to their ability and contribution to companies. So some CEOs can receive salaries a thousand times higher than the median wage of employees. What matters is whether the performance of business owners and top managers can justify their eye-popping compensation.

Sadly, the answer seems to be rather negative in Korea if the first-ever disclosure of the salaries of the nation’s top managers is any guide.

According to annual reports of major listed companies submitted to their shareholders’ meetings, the two top-earning tycoons of 2013 were Chey Tae-won of the SK Group and Kim Seung-yeon of the Hanwha Group. Chey spent most of last year in prison, and Kim on hospital parole.

Chey received a pay package of 30.1 billion won ($28.3 million) last year, but investors will not be able to know how much he will receive this year as the second-generation chaeobl chairman has changed his status from a "registered” executive to an "unregistered” one, which is exempt from the obligatory disclosure of annual salaries. Yet few business analysts think Chey’s "real” status within his group will change.

That explains why Korea’s most famous tycoon, Lee Kun-hee of the Samsung Group, and his son and heir, Jae-yong, have long shifted their status to unregistered members on the group’s board of directors. The senior Lee, Korea’s richest man and one of the 100 richest people in the world, has not received a salary over the past few years. But the public can guess his income, given the median pay of Samsung’s four registered directors is 8.5 billion won, the highest in Korea and more than 100 times higher than the 80 million in the average wage of Samsung employees.

Lee’s case shows the new system, which calls for disclosing salaries of corporate directors who receive 500 million won or more a year, has a long way to go before playing its role as a corporate watchdog.

The financial authorities need to toughen the rules to the level of advanced countries, including the United States, which call for disclosing the pay of the top five earners of major companies, whether they are registered or unregistered executives. The American system also compares the top managers’ salaries and their performances so investors and shareholders can judge whether the financial rewards are reasonable or justifiable. Also helpful is the disclosure of the "pay ratio” ― the ratio of a CEO’s pay to that of a typical employee.

All these devices are necessary to know whether the top managers’ salaries are reasonable rewards for their productivity and contribution to firms, not corporate giveaways for enriching a few just because they are the owners or their cronies.

Business lobbies and some financial papers say the disclosure system is the legislation of jealousy or cheap curiosity. It is also true the Korean CEO’s salaries are just one-tenth the level of their American counterparts.

Again, however, at stake is neither the pay level nor the pay-ratio but whether they are justifiable, or at least defensible. As long as Korean businesses are mired in profits and salaries amid opaque, irresponsible management, the nation will hardly shake off the label of “pariah capitalism.”