Should executives who transferred to competing companies be given bonuses?

 

case

 

• Company A (Credit card company)'s 'Long-Term Performance Incentive Operation Rules' stipulates 'in case of interfering with the company's business activities or acting against the company's interests' as a reason for excluding long-term incentive payments.
• X served as an executive of Company A, but left on January 2020 and moved to a competitor.
• Company A held an Evaluation and Compensation Committee around August 2020. The Evaluation and Compensation Committee decided to pay in four installments from 2020 to 2023 in relation to long-term performance incentive payments from 2017 to 2019. 
• However, the Evaluation and Compensation Committee decided to exclude X from the incentive payments.

 

From the point of view of Company A, it was unfair to give incentives to X, who had moved to a competitor. Company A's position is that X's departure from a competitor should be viewed as 'acting against the interests of the company'.

 

X, on the other hand, insists on receiving performance pay. Moving to a competitor has nothing to do with Company A's interests.

 

 

Seoul High Court's decision

 

The Seoul High Court ruled on December 16, 2022, in the ruling 2022 na 2028421, that it was justified for Company A to exclude X from the incentive payment for the following reasons.

 

 

1. Whether or not a company pays incentives to executives and employees, and how and how to pay them are, in principle, issues that fall within the realm of private autonomy. In particular, long-term incentives have more room for discretion compared to other incentives in that they are basically linked to the business performance of the company as a whole rather than the performance of individual executives.
2. The long-term performance-based pay system operated by Company A is designed to establish a reasonable and sound performance-based compensation system by paying long-term performance-related pay in installments over several years so that executives can control their behavior of pursuing short-term performance while taking excessive risks for high performance compensation. It has a purpose and purpose.
3. Considering the nature of long-term performance-based pay, the purpose of the long-term performance-based pay system, and the contents of related laws (Act on Corporate Governance of Financial Companies), long-term performance-based pay cannot be confirmed or paid until the Evaluation and Compensation Committee decides to pay. It is difficult to regard it as performance-based pay, and it should be seen that Company A has a wide range of discretionary rights regarding the payment conditions, such as whether to pay long-term performance-related pay, reasons for non-payment or reduction, to the extent that compulsory regulations are not violated.
4. X recalls A while working as the head of the strategic sales division, etc.; He was in a position to oversee marketing and sales strategy, and right before his retirement, it seems that he was the highest-ranking executive who had the most opportunities to access management information among non-registered executives.
5. About 4 months after retirement, X was recruited as the head of the competitor's marketing division and essentially performed the same duties as he had at Company A.
6. Considering the length of time, position, and job descriptions of X's employment at Company A, X is highly likely to utilize the human and material networks, marketing techniques, and sales strategies acquired while working at Company A in the process of carrying out duties as head of marketing at a competitor. This presents a very high risk.

 

Opinion of K&P Law Firm

 

This decision is not conclusive as it is a High Court decision. We believe that the Supreme Court may revoke and remand it.

 

From the company's point of view, in order not to pay incentives in the case of the above case, the long-term performance and incentive operation regulations stipulate that "incentives will not be paid if you resign from the company and move to a competitor or re-employment within one year." It will be great. Taking a wider period of one year above can also be dangerous.

 

In the case of a trade secret case, if an employee and a company with knowledge of trade secrets enter into an agreement to prohibit job transfer in the same industry, the one-year period is valid, while the two-year prohibition agreement is considered an excessive restriction. 

 

In addition, if such a new regulation is created in the absence of the incentive payment restriction regulation mentioned above in the incentive operation regulations, it will require the consent of the workers in accordance with changes in the employment rules that are unfavorable to the workers.

 

 

 

Incheon Songdo, South Korea

K&P Law Firm

 

 

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