Opinion: Self-Approved Executive Pay Raises and Self-Directed Dropping of Charges

Allowing a controlling shareholder who also serves as a director to vote on a shareholders meeting resolution setting directors’ compensation is a classic conflict of interest. Courts and prevailing views long allowed a shareholders meeting — even with the controlling shareholder participating — to set an overall cap on total directors’ pay, with the board later deciding each director’s amount. That structure, however, left room for a board formed by the controlling shareholder to set that shareholder’s director pay at a high level.

After the Namyang Dairy case, courts began taking a stricter approach to shareholder votes involving conflicts. At a 2023 shareholders meeting, then-largest shareholder and director Hong Won-sik participated in and passed an agenda item setting the directors’ compensation cap at 5 billion won. The Seoul High Court canceled the resolution, finding it illegal because he exercised voting rights as a “special interested party” on a matter directly tied to his own pay. In April 2025, the Supreme Court dismissed the appeal, upholding that judgment.

The Supreme Court went further in a ruling issued April 2 that the article describes as a milestone in Korean corporate governance history (2025Da219931). The court held it illegal for a CEO who is also a shareholder to raise his own compensation by increasing the total annual salary pool for directors. The court said the CEO, who held a 76% stake, had a special interest and therefore could not exercise voting rights, and that his participation amounted to a conflict of interest barred by Article 368(3) of the Commercial Act. The court also made clear that shares held by a shareholder whose voting rights are restricted must be excluded from the “total number of issued shares,” the base used to calculate quorum.

Under the Commercial Act, a shareholders resolution requires approval by at least one-quarter of the total issued shares (Article 368(1)). If a conflicted controlling shareholder is excluded from the calculation, minority shareholders can become decisive. In effect, the ruling creates a “majority of the minority” outcome in conflict-of-interest cases involving large shareholders. Because the case concerned a regular shareholders meeting in March 2024, before amendments to the Commercial Act on shareholders’ duty of loyalty, the ruling did not reflect those changes. Taking the amended law into account, the article says the reasoning could be extended beyond executive pay to other conflict situations such as mergers and business transfers, limiting controlling shareholders from making decisions for their own benefit in conflicted matters.

Separately, a bill introduced April 30 by the Democratic Party, titled the “Special Prosecutor Bill to Uncover the Truth Behind Allegations Including Manipulated Indictments by the Yoon Suk Yeol administration,” has sparked controversy. The bill specifies as targets for investigation several cases where allegations of illegal prosecutorial investigations have been raised, including the Daejang-dong development project, the Seongnam FC case and the Ssangbangwool remittances to North Korea case. Many of those cases involve Lee Jae-myung, described in the article as the president, as a defendant. Because first trials are still underway, some cases could be subject to withdrawal of indictment under the Criminal Procedure Act. The article says the bill’s stated purpose — correcting past wrongdoing by “political prosecutors,” in light of aggressive investigations and indictments revealed through parliamentary probes and media reporting — is not hard to understand. But it argues that, considering how a special prosecutor would be appointed and the power to withdraw indictments, the bill is difficult to justify from a conflict-of-interest perspective.

Under the bill, the Democratic Party, the People Power Party and the Rebuilding Korea Party would each recommend one candidate, and the president would appoint one of them as special prosecutor. Article 8(7) would grant authority to decide whether to maintain prosecutions, including the power to withdraw indictments in already-indicted cases. The result, the article says, is a structure in which a law proposed by the ruling party and promulgated by the president enables the president to appoint a special prosecutor, and that special prosecutor could then withdraw indictments involving the president. Critics argue that withdrawing an indictment would prevent a verdict, effectively allowing the president to choose the judge in his own case, the article says.

The directors’ pay issue and the special prosecutor bill are separate matters, and they differ in level — legal interpretation versus legislation. But the article says they share a core question: who should make decisions, and how, when conflicts of interest are involved.
 

The article says law must be a general and abstract norm applied fairly and reasonably to everyone — a core principle of modern rule of law — so that all members of the community can accept outcomes and trust in the legal system is maintained. It says the Supreme Court ruling reaffirmed a broadly accepted principle: in conflict situations, a person should not exercise decision-making power for personal gain. By contrast, it says the current special prosecutor bill’s legitimacy is being questioned, to the point that opposition voices have emerged even within the ruling party. A “self-approved” executive pay raise harms shareholders of the company, the article says, but a president’s “self-directed” withdrawal of indictments could shake the rule of law for the entire community. The public, after witnessing what the article calls improper actions by the Yoon Suk Yeol government, has only begun to regain trust in the rule of law, it says, and the bill could undermine that trust again.