"Performance Bonuses Without Shareholder Approval Are Unlawful Dividends"... Shareholder Group Files Invalidation Lawsuit Against Samsung Electronics and SK hynix

Official Letters Sent to National Pension Service and BlackRock to Urge Action

The Korea Shareholder Activism Center (hereinafter "the Center") announced on June 10 that it has begun legal proceedings to file a lawsuit seeking confirmation of invalidity and an injunction to suspend the effect of the stock-based performance compensation agreements separately signed by Samsung Electronics and SK hynix. At the same time, the Center sent official letters urging the implementation of stewardship responsibilities (stewardship code) to the top 10 domestic and foreign institutional investors, including the National Pension Service.

This situation originated on May 27, when Samsung Electronics' labor and management approved a wage agreement that introduced a new "Special Management Performance Bonus," to be paid in company stock and linked to operating profits. Previously, SK hynix had also entered into a similar stock-based performance compensation agreement, utilizing about 10% of its annual operating profit as the funding source.

Yonhap News

Regarding this, the Center argued, "The authority to dispose of a company's profits ultimately rests with the shareholders as owners," and asserted, "By bypassing the shareholder meeting resolution and the profit distribution procedures stipulated in Article 462 of the Commercial Act, transferring future earnings to a specific group constitutes a de facto illegal dividend that directly violates the principle of shareholder equality."

The Center stated that it is formulating its litigation strategy with a law firm and that any shareholder holding at least one share of Samsung Electronics or SK hynix can participate in the lawsuit delegation process through the Center’s Naver Cafe. Previously, the Center had requested a review and copy of the shareholder registry from Samsung Electronics to rally shareholders, but after the company rejected this request, the Center chose to pursue a direct approach targeting institutional investors instead.

The first recipient of the Center's letter was the National Pension Service, which holds approximately 7% of Samsung Electronics' shares. In addition, all of the top 10 institutions disclosed in public filings—including BlackRock, Vanguard, Capital Group, Norges Bank Investment Management (NBIM), and State Street—were listed as recipients.

In particular, the Center pointed out to the National Pension Service that, on May 28, it significantly raised its domestic equity target allocation from 14.9% to 20.8%. The Center emphasized that, as the guardian of the nation's retirement funds, the National Pension Service should not overlook the potential harm to shareholder value. Specifically, the Center demanded: ▲ an official statement on the stock-based performance compensation agreements; ▲ active engagement and dialogue under the stewardship code; ▲ consideration of supporting shareholder actions such as a lawsuit for confirmation of invalidity; and ▲ public disclosure of the issue’s submission to and deliberation process by the Stewardship Responsibility Expert Committee.

Meanwhile, as demands for "allocation of a certain percentage of operating profit" spread across industries—including Kia, HD Hyundai Heavy Industries, and Kakao—the government is reportedly promoting a measure to require a shareholder meeting resolution before companies can pay performance bonuses linked to operating profit, to protect shareholder interests. This initiative, led by the policy chief at the Blue House, is being considered for inclusion in the Capital Markets Act, the Commercial Act, and the Labor Union Act to enhance its binding force. Previously, President Lee Jaemyung also expressed concerns at his first-anniversary press conference that pressures for excess profit distribution could dampen investment from major foreign corporations.

The Center commented, "The government's move to legislate the requirement for shareholder meeting resolutions is, in effect, an admission of the procedural flaws in the existing labor-management agreement approach," and urged, "Efforts should not stop at preventing recurrence with new laws, but should also involve a thorough review and correction of the existing agreements at Samsung Electronics and SK hynix, which are already resulting in the outflow of the companies’ future value."

This content was produced with the assistance of AI translation services.