The role of the CEO is crucial for any organization.
They are responsible for making decisions that impact the business's bottom line. They regulate day-to-day operations, set short—and long-term goals, tackle problems, motivate teams, and manage resources.
Given these significant duties and the weight of accountability they bear, CEOs are often compensated handsomely.
However, CEO salaries can vary significantly depending on several factors, with company size being among the most influential.
However, how much should a CEO be paid?
The answer often varies depending on the size and type of company.
Startups and smaller businesses may offer modest compensation compared to established large corporations, which often provide lucrative salary packages, benefits, and performance-based incentives to attract and retain top-tier talent.
In this blog, we will explore how company size and other factors influence a CEO's salary.
CEO Pay vs. Employee Salaries in South Korea
A 2019 report by the Economic Policy Institute revealed that CEOs of the largest companies in the U.S. earned 320 times more than the average worker, a sharp contrast to the 21-to-1 ratio seen in 1965.
South Korea follows a similar pattern.
According to a report from the online think-tank Chaebol.com, the average salary of executives in major South Korean corporations is NEARLY 11 TIMES HIGHER than that of regular employees within the same company.
This finding is based on data from 162 subsidiaries of 20 major conglomerates in South Korea for the 2023 fiscal year. The report revealed that South Korean executives earned an average annual salary of 1.09 billion won (US$810,000), while non-executive employees made an average of 99.6 million won (US$74,000).
CEO Salary by Company Size in South Korea: Our Findings
Small Companies:
For smaller companies, generally with fewer than 100 employees, CEO salaries are typically modest, ranging from ₩50 million to ₩300 million per year (approximately $40,000 to $240,000). The variation in salary depends heavily on the company's revenue, profitability, and growth potential.
In South Korea's smaller companies, CEO compensation is often more closely tied to the company's performance, and their pay is generally more conservative. These companies may not offer as many benefits or performance-related bonuses as larger firms, and many CEOs in small businesses take a more hands-on approach to management, which can influence compensation. Smaller companies may also offer limited stock options or incentive plans, especially if the company is still in a growth phase.
Medium-Sized Companies:
CEOs of medium-sized companies, typically with between 100 and 500 employees, can expect a salary range from ₩300 million to ₩1 billion per year (approximately $240,000 to $800,000). These companies are often well-established and have a more stable financial footing.
Compensation packages for CEOs in these companies typically include a base salary, performance bonuses, and stock options. Since the revenue and profitability of medium-sized businesses in South Korea tend to be more stable than those of smaller companies, their compensation packages often reflect this growth and financial health. Companies in this category also offer additional benefits like health insurance and retirement plans, with a greater emphasis on performance-based pay.
Large Corporations:
CEOs of large corporations, especially those with more than 1,000 employees and substantial revenue, can earn salaries ranging from ₩1 billion to ₩20 billion or more per year (approximately $800,000 to $16 million). The highest-paid CEOs in South Korea can even surpass this range depending on the size and profitability of the business.
Other Factors Affecting CEO Salary
Industry Performance: High-growth industries like technology offer higher compensation while declining industries like traditional media pay less.
Market Demand for Talent: High demand for skilled executives leads to premium salaries; surplus talent results in lower compensation.
Economic Conditions: A strong economy boosts executive pay, while a weak economy can lower it.
Executive Experience and Skills: More experience and in-demand skills (e.g., AI, data science) lead to higher salaries.
Performance and Contribution: Compensation is tied to performance metrics like revenue and leadership qualities.
Executive Pay by Company Size across Large Korean Companies
The salary gap between executives and regular employees varies greatly across large corporations in Korea.
For example, at Nonghyup, executives earn 202.2 million won, which is only about 1.6 times the 124 million won earned by other employees. In contrast, at Shinsegae Group, executives make 19.3 times more than regular workers, with a salary of 1.05 billion won compared to the average of 54.4 million won for other employees.
At Samsung Group, South Korea's largest conglomerate, executives earn 2.21 billion won, which is 18.9 times higher than the average employee salary. The next highest-paid executives are at LG Group (1.57 billion won), Hyundai Motor Group (1.48 billion won), Doosan Group (1.19 billion won), HD Hyundai Group (1.16 billion won), and SK Group (1.12 billion won).
Nonghyup had the lowest executive salaries but paid the highest wages to its employees. The top-paid employees after Nonghyup were at ship manufacturer HMM (123.3 million won), followed by SK Group (117.5 million won), Samsung Group (117.4 million won), and Hyundai Motor Group (115.3 million won).
The large salary gap at Sinsegae Group comes from the company paying the lowest salary to its non-executive employees. After Sinsegae, the next lowest-paying groups for regular employees were CJ Group (53.3 million won), Lotte Group (63.3 million won), and GS Group (67.6 million won).
Can a CEO Work Without Pay?
Unlike regular employees, CEOs aren't subject to the Labor Standards Act, so there’s no minimum salary requirement. Therefore, a CEO can technically work without pay if the company allows it. However, certain procedures must be followed to ensure everything is handled correctly.
Can CEOs Receive Retirement Pay?
Yes, CEOs can receive retirement pay, just like regular employees. However, this must be clearly stated in the company’s articles of incorporation. If this is included, the CEO can receive retirement pay as planned.
How to Set a CEO’s Salary?
When setting a CEO’s salary, several factors should be considered, such as the company's profits, taxes, health insurance, corporate tax, and the CEO’s retirement plans. Here are three important things to think about when deciding on a salary:
1. Understand the Company’s Finances
Look at the company’s current and expected future sales and profits. The CEO's salary should not exceed the company's net income, so it’s important to set a salary that aligns with the company’s growth.
2. Salary Based on Company Situation
The salary can be adjusted according to the company’s financial health. It’s often wise to start with a conservative salary and adjust it if the company’s financial situation changes.
3. Tax Implications
A lower salary means lower personal income taxes for the CEO, but a higher salary means higher health insurance and pension contributions. It's important to find a balance that makes sense for both the CEO and the company, considering both personal and corporate tax rates.
The Bottom Line:
Understanding the structure of CEO compensation in South Korea is important for both investors and stakeholders. It allows them to assess how executive pay aligns with the company’s performance, ensuring that leadership is incentivized to drive growth, profitability, and long-term value.
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