Samsung Electronics Retail Investors Challenge Bonus Plan They Say Could Reach $28.9 Billion a Year

Samsung Electronics retail shareholder campaign gathers pace

"Tens of trillions can't be paid without shareholder approval"

Letter calls on National Pension Service to act

Retail shareholders of Samsung Electronics Co. plan to send a letter to the National Pension Service arguing that a proposed bonus plan for the chip division should require approval at a shareholder meeting. They estimate the payouts could reach as much as 40 trillion won, or $28.9 billion, a year and are calling on the pension fund, one of Samsung's major shareholders, to respond.

Act, a platform for retail shareholders, said on July 16 that it plans to gather signatures from Samsung investors and submit the letter to the National Pension Service's fund management unit on July 20. It will continue accepting electronic signatures through July 19. The letter challenges the implementation of Samsung's "2026 wage agreement and tentative performance bonus accord" without approval from a general shareholders meeting.

The tentative agreement cited by Act would create a special management performance bonus for the semiconductor division equal to 10.5% of business performance, with no cap, for 10 years. Combined with existing incentives, the total bonus pool would amount to about 12% of business performance, by Act's estimate. Applying that formula to this year's expected results, the group argues, would put annual bonus payouts at as much as 40 trillion won and total payments over a decade in the hundreds of trillions of won.

Act said the National Pension Service should examine how the payout structure affects shareholder value because it is a major Samsung shareholder and a fiduciary managing the public's retirement savings. In the letter, the group plans to say that if the pension fund remains on the sidelines despite concerns over a massive outflow of national wealth and fails to fulfill its fiduciary duty, Samsung Electronics' 6 million retail shareholders will have no choice but to sharply criticize that failure. So far, 424 shareholders have signed the letter. They hold a combined 207,724 Samsung Electronics shares.

Act also argued that shareholders bear the risk of stock-price declines while employees receive bonuses tied to operating profit regardless of the share price. It said that creates an asymmetry in risk sharing and profit distribution between shareholders and employees. The group added that if the government moves to require board approval for bonus payments above a certain threshold, shareholder approval should also be required. "Even director compensation caps worth tens of billions of won require shareholder approval at a general meeting, so allowing tens of trillions of won in bonuses to be paid based solely on a board decision runs directly against the intent of commercial law," it said.

Lee Sang-mok, Act's chief executive officer, said profit distribution on that scale -- with tens of trillions of won paid every year for a decade -- should be subject to strict approval by shareholders, who bear the full risk as the company's true owners. He added that the issue goes to a basic capital-markets principle: employee compensation should also be decided transparently and lawfully under the scrutiny of a shareholder meeting.

Act is also pushing to convene an extraordinary shareholders meeting. In a recent vote on the platform, 99.7% backed the move. Once it secures the shareholder registry based on holdings at the end of the second quarter later this month, it plans to mail major shareholders to ask them to participate in the extraordinary meeting.

Hong Min-seong, Hankyung.com reporter, mshong@hankyung.com