A comparison of CEO pay-performance sensitivity -Korean listed firms and U.S. listed firms

Abstract

In South Korea, disclosure rules for executive compensation were strengthened more vigorously after the FISCMA (Financial Investment Services and Capital Markets Act) was issued in 2013. The new law also requires South Korean listed companies to disclose compensation information about the pay of registered directors whose income more than 500 million won a year. Using the first set of individual compensation and public data for senior executives in South Korea, we documented direct evidence on the level, construction, and mechanisms of CEO remuneration in South Korea and performed a matched sample to comparisons between Korea and the United States. Compared with recent research showing that international differences in chief executive officer compensation have vanished mainly since the mid-2000s, our findings show that there are some differences between the Korean and the U.S. systems that are difficult to explain in terms of traditional incentive contracts. In South Korea, by contrast, chief executives are paid mainly in salary and bonuses. Option grants and long-term incentives are less important. The pay-performance sensitivity of South Korean CEOs is not as high as in the United States