Shinsegae revamps executive compensation system

[Courtesy of Shinsegae Group]

Shinsegae Group announced an overhaul of its executive compensation system that reduced the base salary portion while substantially increasing the performance-based bonus component. The move aims to reward executives who achieve exceptional results via bold initiatives.

Shinsegae Group will also change its key performance indicators (KPIs) for executives, shifting from a title-based system to a role-based one. Previously, executives would have to retire from the entire group after stepping down from the highest position in a subsidiary, which created inefficiencies. The new system will allow executives to transition to other subsidiaries or the group’s command center, thereby allowing them to accumulate and leverage their corporate experience.

According to industry sources on Tuesday, Shinsegae Group recently restructured its executive compensation framework. This reform follows the appointment of Chairman Chung Yong-jin in March 2024, who established a task force to address personnel system reforms that focused primarily on the executive pay structure.

The incentive portion of executive salaries will increase from an average of 20 percent to 50 percent. Shinsegae Group’s internal survey revealed that performance-based bonuses at major South Korean conglomerates typically constitute 50 to 60 percent of executive pay, whereas it was only around 20 percent at Shinsegae Group companies. This disparity provided little motivation for executives to take risks and innovate. The new compensation system will initially apply to recently appointed e-commerce executives at Gmarket and SSG.com, among others.

Shinsegae Group will also shift its KPIs from being title-centered to position-centered. The group’s unique personnel system previously prioritized titles such as general manager or CEO over ranks like managing director, senior managing director, vice president, and president. This system limited the opportunities for executives to move across different subsidiaries or the group’s control team after serving as the head of a subsidiary. The new system aims to facilitate such transitions, thus enhancing organizational flexibility and experience accumulation.

Shinsegae Group’s performance bonus system for all employees will also be refined. Previously, when a product sold well, it was often unclear whether to reward the merchandising, marketing, or sales teams, leading to an equal division of bonuses. This new approach will precisely measure individual contributions to encourage higher performance.

Chung is focused on transforming the group’s work culture alongside these system improvements, and reportedly emphasized communicating based on the company’s enterprise value rather than year-over-year growth rates during a recent executive meeting. He also holds weekly meetings with each subsidiary while stressing the importance of creating business structures that generate cash flow.