Hello, this is attorney Kim Kwang-sik of Cheongchul Law Firm.

One agenda item that almost never disappears from a regular general shareholders' meeting is the approval of the director compensation cap. While many companies have processed this matter as a routine annual formality, recent case law trends make it difficult to view this agenda as a mere routine matter.

The Korean Commercial Act requires director compensation to be set either by the articles of incorporation or by a shareholders' meeting resolution. This is a safeguard to prevent directors from setting their own compensation in a way that harms the company or its shareholders.

In particular, the Supreme Court Decision 2025Da214605 (December 11, 2025) set out important standards on who and through what procedure individual director compensation may be determined after a shareholders' meeting has set the overall cap.

Today, focusing on this judgment, we will organize the meaning of the director compensation cap resolution, the restriction on voting rights of special interest shareholders at a shareholders' meeting, and practical responses for listed companies.

[Question] What should listed companies be careful about when handling the director compensation cap approval agenda?

[Answer]

1. Director compensation must be determined by the articles of incorporation or by a shareholders' meeting resolution

Article 388 of the Commercial Act (상법 제388조) provides that, where the articles of incorporation do not set director compensation, it must be determined by a shareholders' meeting resolution. Accordingly, if the articles of incorporation do not specify a concrete amount of director compensation, the company must obtain a shareholders' meeting resolution on director compensation.

The compensation referred to here is not limited to ordinary monthly salary. Regardless of the label, salary, bonus, allowances, retirement benefits, retirement consolation payments, and any economic benefit a director receives in return for performing their duties may, in principle, be included in director compensation.

In practice, most companies do not directly set the specific compensation of individual directors in their articles of incorporation; instead, they obtain approval of a “director compensation cap” at the regular general shareholders' meeting. This approach itself is permissible, but the subsequent procedure for deciding how much each individual director is paid within the cap must be lawfully designed.

2. The shareholders' meeting resolution alone is not enough; the procedure for individual compensation decisions also matters

In the company at issue in Supreme Court Decision 2025Da214605, while the shareholders' meeting set the director compensation cap, the actual individual director's salary was allowed to be determined by the representative director taking management performance and contribution into account.

In this regard, the Supreme Court held that it is permissible to set the total amount or cap of director compensation through the articles of incorporation or a shareholders' meeting resolution and to delegate to the board of directors the allocation of compensation to each individual director within that range. However, it determined that allowing the representative director to make this decision directly is difficult to permit.

If the representative director can directly set the compensation of other directors, this can effectively allow the representative director to set their own compensation as well. In addition, while the board of directors should supervise the representative director's execution of duties, allowing the representative director to control other directors' pay would weaken the board's supervisory function. The Supreme Court relied on these grounds.

3. Restrictions on voting rights of director-shareholders must also be reviewed

In the director compensation cap approval agenda, the restriction on voting rights of special interest shareholders may also become an issue.

Article 368(3) of the Commercial Act (상법 제368조 제3항) provides that a person with a special interest in a shareholders' meeting resolution may not exercise voting rights. In other words, where a shareholder has a personal and direct interest in the agenda beyond the general interest held by shareholders as such, the exercise of voting rights may be restricted.

A person who is both a director and a shareholder may qualify as a special interest shareholder with respect to the director compensation cap approval agenda. This is because, once the director compensation cap is approved, the relevant director is in a position to receive compensation within that cap.

Therefore, when a listed company places a director compensation cap approval agenda before its shareholders' meeting, it must review in advance whether the voting rights of director-shareholders should be restricted, whether the resolution requirements are still satisfied even after excluding such votes, and whether the vote tally and the meeting minutes appropriately reflect this process.

This issue is even more important for listed companies in which a controlling shareholder also serves as a registered director. If the controlling shareholder's voting rights are excluded, the outcome of the director compensation cap agenda may change.

4. Listed companies must review their articles of incorporation, executive compensation rules, and shareholders' meeting procedures together

First, listed companies should first review their articles of incorporation and internal executive compensation rules. If the articles of incorporation or internal regulations contain language to the effect that “the representative director shall determine director compensation” or “the representative director shall determine executive salaries based on management performance,” there may be legal risk in light of the recent case law.

Second, the agenda items at the shareholders' meeting should be designed more clearly. Beyond merely listing the total compensation cap, the application period of the cap, the items included within compensation, and the procedure for determining the amount paid to each individual director should also be organized.

Third, the allocation of compensation to individual directors should be designed to go through an appropriate procedure such as a board of directors' resolution or a compensation committee, rather than being decided by the representative director alone. In companies that have set up a compensation committee centered on outside directors, actively utilizing this committee can also be considered.

Fourth, the method of tallying voting rights on the day of the shareholders' meeting should also be organized in advance. Where the voting rights of director-shareholders must be restricted, the company must accurately determine whether the resolution requirements are met, taking into account electronic voting, proxy votes, and the voting record of institutional investors.

Fifth, past compensation payment records should also be reviewed. If, in the past, compensation was paid without a shareholders' meeting resolution, or if individual director compensation was determined solely by the representative director's decision, it may give rise to future claims for unpaid compensation, calculation of retirement benefits, restitution of unjust enrichment, or director liability issues.

In the end, the director compensation cap approval agenda can no longer be regarded as a merely formal pass-through item at the regular general shareholders' meeting. The Commercial Act places director compensation under the control of the shareholders' meeting, and recent case law concretizes that policy through the issues of individual compensation decision procedures and the restriction on voting rights of special interest shareholders.

From the perspective of a listed company, the articles of incorporation, executive compensation rules, shareholders' meeting agenda, vote tally, board or compensation committee resolutions, and disclosure materials should all be reviewed as one continuous flow. In particular, where a controlling shareholder also serves as a registered director or where the authority to determine executive compensation is concentrated in the representative director, proactive arrangements before the regular general shareholders' meeting are essential.

Cheongchul Law Firm provides advice to listed companies on regular general shareholders' meeting preparation, the design of director compensation cap agenda items, the review of voting right restrictions for special interest shareholders, and the maintenance of articles of incorporation and executive compensation rules. If you are concerned about procedural risks related to director compensation resolutions, we recommend reviewing the entire structure in advance, rather than relying on a formal check immediately before the shareholders' meeting.