Director pay in Korea needs the articles or a shareholders' resolution

This guide is for founders, directors and finance staff of companies in Korea, including foreign-invested companies with foreign directors. The rule: a company may pay its directors only if the articles of incorporation set the amount or the general meeting of shareholders approves it. Paying a director a monthly salary does not by itself create a right to that pay.

What Article 388 says

Article 388 of the Commercial Act (상법) provides that if the articles of incorporation (정관) do not set the amount of directors' remuneration, it is set by a resolution of the general meeting of shareholders (주주총회). One of the two must exist. If neither exists, the payment itself has no basis.

The provision is one line, but in practice it has three results.

Result 1: pay without a basis becomes a repayment issue

Remuneration paid when the articles set no amount and the shareholders passed no resolution is a payment without a basis. If the representative director (대표이사) set their own amount and took it, that alone can start a dispute. This matters most in companies with several directors and spread-out shareholdings.

In practice, companies often put only a cap in the articles and delegate the specific amounts to the board of directors (이사회) or the representative director. Once a cap is written in the articles, however, the company must hold another shareholders' meeting every time it wants to go above it. Setting the cap with some headroom from the start makes things easier to run.

Result 2: nominal directors also have a right to pay

The Supreme Court (대법원) has held that directors and auditors (감사) appointed at a shareholders' meeting have, in principle, a right to claim remuneration (보수청구권) even if, under an express or implied agreement with the company, they delegate all their duties to other directors and do no actual work. The reason is that, as directors or auditors, they bear legal liability under Articles 399, 401 and 414 of the Commercial Act, among others.

Not working is therefore not enough, by itself, to deny their status or their right to pay. The exception is special circumstances, for example where the appointment or remuneration resolution is void, or where their passive performance differs from the duties expected at appointment and amounts to a breach of trust (배임적 행위).

This is why a company that registered a family member as an officer (등기임원) and paid them will find it hard to challenge those payments later. Seen the other way, registering someone as an officer brings both a duty to pay them and their legal liability as a director.

Result 3: excessive pay can be reclaimed

The same ruling sets a limit. The remuneration of directors and auditors is consideration for performing their duties, so it must stay in reasonable proportion to what they provide to the company. In special circumstances, the exercise of the right to remuneration is restricted in part or in full, and the company can demand the return of the amount paid beyond what is recognized as reasonable. Examples are pay so excessive that it is markedly out of balance and beyond a reasonable level, or a director or auditor appointed only as a way to pay company money to an individual in the form of remuneration.

Cap in the articles, or a shareholders' resolution?

The two methods carry different workloads. If the articles set the amount directly, every change requires an amendment of the articles, which means a special resolution (특별결의) of the general meeting. If the articles say nothing, the general meeting must set the remuneration by ordinary resolution (보통결의) every year.

So most companies take a middle path. The articles set only a cap on the total remuneration of all directors, and the board or the representative director decides individual amounts within that cap. With this structure, personnel changes within the cap do not require another shareholders' meeting.

When you set the cap, state clearly in the wording whether bonuses and performance pay are included. If this is unclear, a dispute over whether the cap was exceeded arises in the year performance pay is given. Severance pay (퇴직금) needs its own provision, separate from remuneration, so it is cleaner to keep it apart entirely.

Checklist

• Check whether the articles contain a provision on directors' remuneration.
• Distinguish whether the articles set an amount or only a cap.
• If only a cap is set, check every year that it is not exceeded.
• If the articles say nothing, set remuneration by a shareholders' resolution.
• Include the amount, timing and method of payment in the resolution.
• Handle registered and unregistered officers separately.
• For unregistered officers, assess separately whether they count as employees (근로자성).
• When registering a family member as an officer, assume that a director's liability comes with the role.
• Keep material that explains the proportion between duties and pay level.
• Keep pay levels at companies in the same industry and of similar size as reference material.
• State in the resolution wording whether bonuses and performance pay count toward the cap.
• Severance needs its own rules, so keep it separate from the remuneration resolution.
• Check the shareholders' meeting notice and resolution procedures for defects.
• In a company with spread-out shareholdings, confirm the resolution requirements in advance.
• Decide whether to repeat the approval every year at the annual general meeting or settle it by amending the articles.
• If you delegate to the board, state the basis for the delegation in the articles.
• Keep the board minutes that set individual amounts.
• At year-end, check that total remuneration is within the cap in the articles.
• Set the auditor's remuneration separately under Article 415 of the Commercial Act.
• Non-standing (part-time) officers also need the same basis for their pay.
• Match the remuneration resolution with the payroll register and withholding tax records.