In 2025 SK hynix, a leading Korean chipmaker, agreed to pay employees a fixed 10% of operating profit and removed a long-standing bonus cap. That reset more than pay: it exposed a question Korean company law has never squarely answered — is a profit-linked bonus a board-discretion expense, or, in economic substance, a distribution of profit that belongs to shareholder process? Korea’s 2025–26 governance reform strengthened board independence and extended directors’ duty of loyalty to shareholders, but it never built the body that settles exactly this conflict elsewhere: an independent compensation committee. For an investor pricing the Korea discount, this is an emerging governance dimension to watch — not a settled cause of the discount, and not a litigation forecast.

The open question: expense or distribution

The distinction is not cosmetic. Treated as an operating expense, a bonus sits within the board’s discretion; treated as a distribution of profit, it edges toward territory the Commercial Act reserves for shareholders — dividends are, as a rule, a matter for the general meeting under Article 462. A bonus fixed as a percentage of profit blurs that line, because it allocates a share of the year’s profit before the shareholders’ process reaches it.

As of mid-2026, no on-point Korean holding settles that characterization. The contest is already live in public: a shareholder group has argued that a profit-linked bonus keyed to pre-tax operating profit is unlawful without shareholder approval and has signaled derivative litigation, while the union side maintains the arrangement is lawful. Caveat: this is an open, debated question. No court has ruled, and nothing here predicts how one would.

How other systems structured the same question

Other jurisdictions did not leave the pay-versus-profit boundary to ad hoc dispute; they built a mechanism for it.

In the United States, these decisions run through an independent compensation committee whose determinations have traditionally drawn business-judgment deference — though recent Delaware decisions have tightened review, so the committee is a processing mechanism, not an absolute shield. Germany takes a structural route: under codetermination, worker representatives fill half of the supervisory board in companies above 2,000 employees and one-third above 500, so pay-and-profit bargaining is internalized inside the board rather than litigated after the fact. Caveat: neither model eliminates uncertainty, and the two rest on opposite philosophies. The point is narrower — each built a dedicated forum where Korea has none.

What Korea’s reform changed — and what it omitted

Korea’s reform moved on board composition and duty, not on this forum. The 2025 amendment extended directors’ duty of loyalty from “the company” to “the company and its shareholders” under Article 382-3, in the Commercial Act as in force from March 2026. From July 2026, outside directors are renamed “independent directors,” and large listed firms (assets of ₩2tn or more) must fill a majority of the board with them, subject to a compliance grace period into 2027.

But the Commercial Act mandates an audit committee, not a compensation committee; board committees under Article 393-2 remain optional. So the reform strengthened who sits on the board without creating the body that, elsewhere, processes how profit is split between shareholders and employees. The counterargument is fair on its own terms: it treats employee bonuses as an operating expense within the board’s ordinary discretion, a reading that fit the pre-amendment structure. The reversal is that the loyalty duty has now expanded to shareholders while the institutional machinery to test these specific decisions has not.

Implication (governance). For a governance-focused investor, the reform addresses the first-order concern — controlling-shareholder discipline and board independence — but leaves a second-order question, the allocation of profit between shareholders and employees, without an institutional forum. This should be held at its proper altitude: the Capital Market Institute attributes the Korea discount primarily to weak shareholder returns and low profitability and growth, not to a profit-distribution gap. The distribution question is an added governance dimension to track, not a re-diagnosis of the discount.

Signals to watch

  • Whether any post-reform dispute produces the first on-point holding on whether profit-linked employee pay is a deductible expense or a distribution requiring shareholder process.
  • Whether large listed boards adopt independent compensation committees voluntarily, absent a mandate — and whether disclosure begins to explain profit-linked pay in shareholder-value terms.
  • Whether the reform’s independent-director requirements, as they phase in through 2027, change how boards document compensation decisions at all.