South Korean insurance companies need to increase the proportion of performance-related pay, such as restricted stock units and stock options, in the annual remuneration of their CEOs, says the Korea Insurance Research Institute (KIRI).
Currently, base pay accounts for 64% of the annual salary of the CEOs of South Korean insurers whereas the ratios of short-term and long-term performance-related pay are 19% and 17%, respectively, reported Business Korea quoting a KIRI report. According to the institute, the respective ratios are 16%, 5% and 73% in the case of their US counterparts.
“The South Korean CEOs are getting a high pay regardless of their performance and this means that no incentives are being provided for their corporate value enhancement efforts,” KIRI said.
The institute said, “There are analyses that the corporate value of an insurance company rises along with the CEO’s shareholding in the company.”
At present, shares account for approximately 10% of domestic insurers’ CEO performance-related pay whereas the ratio of cash amounts to 74%. On the other hand, listed US insurance companies’ CEOs are required to own treasury shares equivalent to 300% to 500% of their annual base pay.
The institute also pointed out that the ratio of deferred payment in the performance-related pay should be raised so that the CEOs can focus more on long-term performance and risk reduction.