Case Background
Company A (a credit card company) has a "Long-term Performance Incentive Operation Regulation" that stipulates as an exclusionary reason for long-term performance bonus payment, "actions that hinder the company's business activities or are against the company's interests."
Executive X resigned from Company A in January 2020 and joined a competitor.
In August 2020, Company A held a Performance Evaluation and Compensation Committee meeting. The committee decided to pay long-term performance incentives related to the period from 2017 to 2019 in four installments from 2020 to 2023.
However, the Performance Evaluation and Compensation Committee excluded Executive X from the list of incentive recipients. The reason is that X resigned from their executive position in January 2020 and joined a competitor.
From Company A's perspective, paying a performance bonus to X, who joined a competitor, would be unfair. Company A believes that X's move to a competitor should be considered as an "action against the company's interests."
On the other hand, X argues that they should receive the performance bonus, claiming that their decision to join a competitor is unrelated to Company A's interests.
Seoul High Court's Decision
In the decision 2022Na2028421 announced on December 16, 2022, the Seoul High Court ruled that it was justifiable for Company A to exclude X from the incentive payment list for the following reasons:
- 1The decision on whether to pay performance bonuses to employees, the method and conditions of payment, etc., are matters that fundamentally belong to the realm of private autonomy. In particular, long-term performance bonuses are essentially more discretionary than other bonuses, as they are primarily linked to the overall performance of the company rather than the individual performance of the executive.
- The purpose and intent of the long-term performance bonus system operated by Company A is to establish a reasonable and sound performance compensation system by controlling executives' pursuit of short-term performance while taking excessive risks for high performance rewards, by distributing long-term performance bonuses over several years.
- Considering the nature of the long-term performance bonus, the intent of the long-term performance bonus system, and the content of related regulations (laws regarding the governance structure of financial companies), it is difficult to see the long-term performance bonus as a fixed bonus before the Performance Evaluation and Compensation Committee's payment resolution. Within the scope of not violating mandatory regulations, Company A should be deemed to have a broad discretionary power over the payment conditions, such as the long-term performance bonus payment eligibility, non-payment, or reduction reasons.
- X held a position overseeing marketing and sales strategies at Company A, working as the head of strategic sales, and immediately before resigning, X was one of the highest-ranking executives among unregistered executives with the most access to management information.
- Approximately four months after resigning, X was recruited as the head of marketing at a competitor, performing essentially the same tasks as at Company A.
- Given the duration of X's employment, position, and job responsibilities at Company A, it is highly likely that X would utilize the human and material networks, marketing techniques, and sales strategies acquired while working at Company A in the process of performing their duties as the head of marketing at the competitor.
Opinion of K&P Law Firm
As the aforementioned decision is a high court ruling, it is not definitive and may be subject to reversal and remand by the Supreme Court, according to our perspective.
From the company's standpoint, in cases like this, it would be better to explicitly state in the long-term performance incentive operation regulations that "incentives will not be paid if an employee resigns from the company and joins or is re-employed by a competitor within one year." Setting a period longer than one year might pose risks as well.
In trade secret cases where employees with knowledge of trade secrets and the company have non-competition agreements, courts have deemed a one-year restriction to be valid, while a two-year restriction was considered excessively limiting.
Moreover, if the company decides to introduce the aforementioned incentive payment restriction regulation in the absence of such a provision in the current incentive operation regulations, it would be necessary to obtain the consent of the employees, as this would be considered a change in employment rules that is disadvantageous to the workers.
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