"Too Much Executive Compensation" Stopped by National Pension Service... Shareholder Meeting Opposition Rate Doubles

Opposition to Executive Compensation Proposal Doubles from 28.6% to 54.5%
More Companies Voluntarily Reduce Compensation Amounts
Opposition Rates for Director Appointments and Bylaw Amendments Decrease Compared to Last Year

As shareholder meetings of December fiscal year-end listed companies are in full swing, the National Pension Service (NPS), the largest institutional investor in Korea, has been actively exercising its voting rights against executive compensation proposals compared to last year. The main reason is that the compensation amounts are considered excessive relative to business performance. Overall, the opposition rate is higher than the approval rate.

Opposition Rate to Compensation Proposals Doubles in One Year

As of the 24th, a full survey of companies whose voting plans were disclosed by the NPS this month shows that out of 55 companies, the NPS decided to oppose the executive (directors and auditors) compensation proposals in 30 cases. The remaining 25 cases were approved. The opposition rate stands at 54.5%, nearly double the 28.6% opposition rate for the same agenda analyzed by CEO Score of the Corporate Data Research Institute in 2023. Even considering that many voting plans have yet to be disclosed, the opposition rate has surged compared to last year.

Most companies whose executive compensation proposals were opposed share the common characteristic of experiencing 'negative growth,' with operating profits in 2023 declining compared to 2022. For example, KT, which faced opposition, posted an operating profit of KRW 1.6498 trillion last year, down 2.4% from KRW 1.6901 trillion a year earlier. Another opposed company, KT&G, saw its operating profit decrease by 7.9%, from KRW 1.2676 trillion in 2022 to KRW 1.1679 trillion in 2023. Conversely, companies that approved the compensation proposals mostly reported growth in operating profits.

It is rare for compensation proposals to be actually rejected due to opposition from the NPS. Due to the high ownership stakes of related parties in Korean companies, proposals often pass according to the wishes of the 'owner family.' However, the NPS's check-and-balance message is not meaningless. It supports the voice that "executive compensation is excessive compared to the company's circumstances." In fact, seemingly conscious of this public sentiment, some companies have voluntarily reduced their compensation limits at this year's shareholder meetings. Samsung Electronics lowered its director compensation limit from KRW 48 billion last year to KRW 43 billion, SK reduced it from KRW 22 billion to KRW 18 billion, and LG cut it from KRW 18 billion to KRW 17 billion.

Director Appointments and Articles of Incorporation Amendments at Usual Levels

The NPS has shown similar behavior to previous years on other major agenda items. It opposed 21 out of 260 cases related to the appointment of executives such as directors and auditors, an opposition rate of 8.1%, slightly lower than last year's 10.3%. The NPS approved the appointments of Jang In-hwa as chairman of POSCO and Bang Kyung-man as president of KT&G, which were among the most closely watched proposals at this year's shareholder meetings. However, as of the 25th, the NPS has not supported any shareholder proposals from activist funds. There were no surprises. The opposition rate for amendments to the articles of incorporation was 11.1%, also lower than last year's 16.2%.

Since the introduction of the Stewardship Code (guidelines for institutional investors' voting rights) in 2018, the NPS gradually increased its proportion of opposing votes but reversed this trend with a decrease last year. According to CEO Score, the overall opposition rate of the NPS on shareholder meeting agenda items was 11.2% in 2020, 11.4% in 2021, 15.3% in 2022, and decreased to 13.8% last year. Despite the overall downward trend in opposition rates, the NPS has taken a firm stance specifically on executive compensation-related agenda items.