Perils of Limiting the Coverage of Mandatory Pay Disclosure: The Korean Experience

Perils of Limiting the Coverage of Mandatory Pay Disclosure: The Korean Experience

Jinhyeok Ra, Woochan Kim

Series number :

Serial Number: 
572/2018

Date posted :

August 27 2018

Last revised :

September 25 2018
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Keywords

  • executive compensation • 
  • disclosure evasion • 
  • family executives • 
  • executive-to-worker pay ratio

This study documents the danger of limiting the coverage of mandatory pay disclosure. Exploiting the 2013 rule change in Korea, we find that its restrictive coverage, confined to board members with total annual pay exceeding 500 million Korean won, led a large fraction of executives to evade disclosure through deregistration (i.e., stepping down from the board) or pay-cuts.

We also find that such evasion is mostly carried out by family executives in firms with high executive-to-worker pay ratios. If the original pay level is close to the threshold, we find that family executives choose pay-cuts over deregistration, as their preferred means of evasion.

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Authors

Real name:
Jinhyeok Ra