CONTENTS
- 1. Director's compensation | Legal structure and recent precedent trends
- - Legal basis and mandatory regulation of director compensation
- - Scope of director compensation
- - Key changes in recent case law trends
- 2. Director's compensation | Necessity of general shareholders' meeting resolution and board of directors' resolution
- - Judgment on compensation payment without resolution at general shareholders’ meeting
- - Remuneration limit approval structure and limits
- - Recent judgment trends regarding the absence of board resolutions
- 3. Director's compensation | Legal liability arising from illegal payments
- - Responsibility for return of unjust enrichment
- - Legal implications of expanding voting rights restrictions
- - Legal effects of resolution defects
- 4. Director's compensation | Key points for companies to check
- - inspection checklist
- - Assistance from corporate legal group
1. Director's compensation | Legal structure and recent precedent trends
Director compensation is an area directly connected to the company's governance structure and is strictly regulated through commercial law and precedent.
In particular, recent case lawDevelopment in the direction of strengthening responsibility for violations of compensation payment proceduresIt is affecting the overall internal decision-making structure of companies.
Legal basis and mandatory regulation of director compensation
Article 388 of the Commercial Act stipulates that, if the amount of director's remuneration is not specified in the Articles of Incorporation, it shall be determined by resolution of the general shareholders' meeting. This is a mandatory regulation to protect the interests of the company, shareholders, and corporate creditors by preventing directors from pursuing personal interests in relation to their own remuneration. Therefore, if the Articles of Incorporation stipulate that a director's remuneration is determined by a resolution of the general shareholders' meeting, the director cannot exercise the right to claim remuneration unless there is evidence to acknowledge that there was a resolution of the general shareholders' meeting regarding the amount, payment method, payment period, etc. At this time, ‘director’s remuneration’ includes all compensation paid as compensation for the performance of the director’s duties, regardless of the name such as salary, bonus, etc., and the same applies to money paid by the company in accordance with management performance under the name of performance bonus, special performance bonus, etc., or money paid for the purpose of motivating performance achievement.
Article 388 of the Commercial Act“If the amount of director’s remuneration is not specified in the Articles of Incorporation, it shall be determined by resolution of the general shareholders’ meeting.”It is stipulated that:
This regulation is interpreted as a mandatory regulation, and according to the Supreme Court ruling 2018Da290436 on April 9, 2020, it is difficult to cure the defect only through ex post approval or internal agreement.
This mandatory rule is derived from the following purposes.
• Prevent arbitrary leakage of company assets
• Protect the interests of shareholders and creditors
In other words, director compensation can be interpreted as functioning as a control device for corporate governance.
Scope of director compensation
division | Included or not | Judgment criteria |
salary | include | basic compensation |
allowance | include | Job-related payments |
bonus | include | Performance linked |
special performance bonus | include | job price |
severance pay | include | reward while working |
Director compensation is judged based on its actuality, regardless of its name.
Supreme Court 2020. 4. 9. Sentence 2018Da290436According to the , special performance bonuses were considered to be abnormal compensation paid to directors in return for performing their duties.
Additionally, the Supreme Court has consistently ruled that severance pay is included in director compensation, considering it as salary paid in return for performing duties during employment.
Key changes in recent case law trends
Summarizing recent precedents, director compensation regulations are changing in the following direction.
• The concept of remuneration continues to expand in real terms
• Strengthen responsibility for procedural violations
• Expand the scope of restrictions on voting rights of interested parties
especiallySupreme Court 2025Da210138 decision on April 24, 2025According to the ruling, shareholders who are directors are considered as special stakeholders and their voting rights are restricted even in remuneration limit resolutions.It is done.
This is assessed as applying more stringent controls to the previously relatively relaxed compensation resolution structure.
This trend continues to affect the overall corporate compensation decision structure.
2. Director's compensation | Necessity of general shareholders' meeting resolution and board of directors' resolution
Director compensation is based on resolutions at the general shareholders' meeting, but can be delegated to the board of directors to a certain extent.
However, if these procedures are not met, the legal basis for payment of remuneration itself may be denied.
Judgment on compensation payment without resolution at general shareholders’ meeting
In principle, director compensation must be determined through a resolution at a general shareholders' meeting, and if this is not done, the right to claim compensation may be denied.
The Supreme Court judges that the burden of proving that a resolution at a general shareholders' meeting exists lies with the directors (Supreme Court 2015. 9. 10. Sentence 2015Da213308), it is believed that remuneration paid without resolution is subject to return of unjust enrichment (Supreme Court 2020. 4. 9. Sentence 2018Da290436).
This trend of precedents isDirection that it is difficult to compensate for procedural defects only through post-approval or internal agreementIt is interpreted as:
Remuneration limit approval structure and limits
In practice, it is common to have a structure in which only the total compensation is approved at a general shareholders' meeting and individual compensation is delegated to the board of directors.
Although the Supreme Court considered this structure itself to be permissible, it ruled that delegation to the board of directors was only possible within a specific scope and comprehensive delegation was not permitted.
Recent judgment trends regarding the absence of board resolutions
Regarding director compensation paid without board resolution, lower courts tend to view it as payment without legal basis and therefore subject to return of unjust enrichment.
actuallySeoul Western District Court Sentence 2020 Gadan 306634 on November 4, 2021classSeoul Southern District Court Dec. 15, 2022 Sentence 2022 Gadan 237856For the same purpose, payment of remuneration without board resolution was deemed illegal.
Combining these judgments, the following structure is derived.
situation | legal evaluation |
There is only shareholder limit approval | insufficiency |
No board resolution | False basis for payment |
Compensation payment completed | Return of ill-gotten gains |
This could have a significant impact on the way compensation is paid in practice.
3. Director's compensation | Legal liability arising from illegal payments
The legal basis for payment of director's compensation is recognized only when the resolution procedures required by the Commercial Act are met.
If these procedures are not followed, payment of such compensation may result in civil liability.
Responsibility for return of unjust enrichment
According to Article 741 of the Civil Code, if a profit is obtained without legal cause, the profit must be returned.
In the case of director compensation, if payment is made without a general shareholders' meeting or board resolution, the legal basis for the payment will not be recognized.
In this case, the compensation is evaluated as a benefit without legal cause, and the amount paid is subject to a refund.
In the end, flaws in the director's remuneration resolution process can become a reason to deny the basis for the payment itself and can lead to problems with the return of all amounts already paid.
Legal implications of expanding voting rights restrictions
During the process of determining director compensation, the voting rights of shareholders with a direct interest in the compensation may be restricted.
Recently, these voting rights restrictions have been interpreted to broadly apply not only to individual remuneration decisions but also to basic resolution steps such as remuneration limits.
• Possibility of disputes over the validity of the remuneration limit resolution itself
• Denial of grounds for compensation due to defects in resolution
• Reexamination of the validity of existing resolutions and expansion of the possibility of disputes
This interpretation may result in strengthening the level of control over the overall remuneration resolution and may result in the legal implications described above.
Legal effects of resolution defects
If any of the following defects exist during the resolution process, the resolution may be invalidated or cancelled.
• Quorum not met by law or articles of incorporation
• Occurrence of serious procedural defects
If there is such a flaw in the resolution, it is difficult for the payment of director compensation based on the resolution to be recognized as fair payment.
As a result, you may be asked to return any remuneration already paid.
4. Director's compensation | Key points for companies to check
In order to prevent disputes related to director compensation, it is necessary to check the compensation decision structure and procedures in advance.
inspection checklist
Check items |
|---|
Are compensation limits or standards clearly set at the general shareholders' meeting? |
Has individual compensation been specifically determined through board resolution? |
Are compensation calculation criteria and payment methods internally documented? |
Are the voting rights restrictions of shareholders who are directors appropriately reflected? |
Is there a possibility that there may be procedural defects in compensation paid in the past? |
In particular, if actual payment is made customarily with only a compensation limit set, legal issues may arise based on recent standards, so prior inspection is required.
Assistance from corporate legal group
Daeryun Law Firm's corporate lawyers provide general legal advice, including inspection of compensation systems, reorganization of resolution structures, and establishment of dispute response strategies.
▶ Review procedural defects that may arise in the process of setting remuneration limits and determining individual remuneration, and suggest measures to improve the articles of incorporation and internal regulations.
▶ Review whether there are legal problems with director compensation already paid, calculate the scope of return of unfair profits, and establish response strategies
▶ In the event of a dispute such as a shareholder representative lawsuit, the scope of responsibility of the company and executives is analyzed and a step-by-step lawsuit response plan is presented.
▶ Review governance-related issues such as voting rights restrictions and resolution validity, and prepare internal control measures to prevent future disputes.
If you are concerned about the possibility of procedural defects or disputes related to moving compensation 🔗Corporate lawyerPlease consult with us to prepare a preliminary inspection and response strategy.
