Minister of Knowledge and Economy Choi Joong-kyung invited legitimate complaints from the business community again when he called on large corporations on Saturday to cut executive pay and use the savings to create jobs. His remarks were received as an unwarranted act of government intervention in the private sector. He had made similar anti-business remarks on previous occasions.
At a forum sponsored by the Federation of Korean Industries, a lobby for big businesses, Choi said, “Large corporations will have to perform their social responsibilities and strike a balance between market principles and moral and social values, such as sharing and care for others, if they are to become ‘great business enterprises.’” He went on to claim that large corporations spend too much on executive compensation while neglecting investment in job creation for young people.
His remarks were controversial at least on two counts ― whether or not he had the mandate to tell companies to cut executive pay and spend more on job creation and what criteria he referred to when he claimed they pay too much to their executives.
It is primarily shareholders that may take issue with the level of executive pay. Indeed, the “say on pay” provision of the Dodd-Frank Act of the United States allows shareholders to vote on executive compensation. Trade unions, nongovernmental organizations and academics may also complain about high levels of executive compensation. But not the government, which has a constitutional obligation to protect “the freedom and creative initiative of enterprises.” It needs to refrain from intervening in the private sector unless the market is dominated by monopolistic or oligarchic business enterprises or the economic power in the hands of a select few is abused.
Against this backdrop, it is worth noting remarks by a chaebol official, who was quoted as saying, “To say the executive pay, approved at a shareholder meeting, is too high is to meddle excessively in the private sector. If it wishes to do so, it would be better for the government to set a limit to executive pay and, in return, to guarantee that executives retire at the legally set age (instead of being dismissed anytime).”
According to a report, the average executive pay among the top 100 companies in terms of turnover was 870 million won last year. In the case of Samsung Electronics, the combined pay for the top three executives was 17.95 billion won.
The levels of executive pay can be compared to that of a median worker. Another criterion can be company size. The rate of an increase in executive pay can be compared with that of profits generated. Still, determining an appropriate level for a company’s executive pay is easier theorized than done.
Another question regarding the minister’s remarks was how many jobs executive pay cuts could create. They probably would make no discernable ripple when it comes to the nation’s jobless rate. If so, why did the minister make the remarks in the first place?
The remarks could not have been an off-the-cuff comment, given that it was part of a lengthy speech. Nonetheless, the minister reportedly did not pay much attention to what impact his remarks would have on the business community. A news report quoted an unidentified official as saying that his aides prepared the speech with no due regard for data analyses and that few expected the reaction to the remarks would be as great as it was. If true, the minister was incorrigibly careless.
It was not the first time for the minister to deal with serious economic issues with a loose tongue. When President Lee Myung-bak said earlier this year that gasoline prices were “suspicious,” the minister said that, as a certified public accountant, he would look into the books of refineries to determine the costs. Then he twisted their arms and succeeded in lowering the prices only to find them returning to the previous levels in several weeks. Later, he threatened to establish state-owned gas stations in his fight against rising gasoline prices.
The minister will do well to keep his tongue in check and avoid meddling in the private sector. After all, Korea is a capitalist country.
