DR & AJU provided advice on the provision of performance bonuses to directors in consideration of a recent Supreme Court decision.

The Supreme Court decision 2018Da290436, which was made on April 9, 2020, stated that if a special performance bonus exceeds the limit of directors’ remuneration set by a resolution of the general meetings of shareholders, a part of the bonus within the limit of directors’ remuneration also constitutes payments without any legal ground.

The client was a company of which articles of association prescribe that the directors’ remuneration shall be determined by a resolution of the general meeting of shareholders. Additionally, the company’s regulations on director management decided by the board of directors stipulate that registered directors’ total remuneration limit must be established by a resolution of the general meeting of shareholders and confirmed by the board of directors, and a performance bonus must be determined by a resolution of the board of directors. DR & AJU was asked to provide legal advice on whether the client can provide their directors with performance bonuses within the remuneration limit by a resolution of the board of directors according to the Supreme Court ruling above. 


DR & AJU focused on the fact that the Supreme Court’s decision was based on the unique fact relation that there was no resolution of the board of directors made on the payment of a special performance bonus for a director. Therefore, the decision has not been changed from previous Supreme Court decisions that state “a company may establish the total or maximum amount of remuneration for directors in a general meeting of shareholders and delegate the determination of the relevant details, such as the amount of payment for individual directors, to the board of directors.” Based on this recognition, DR & AJU concluded that the client can pay their directors a basic remuneration by a resolution of the board of directors within the established limit of remuneration set in the resolution of the general shareholders’ meeting.

Furthermore, DR & AJU provided comprehensive advice based on the recent Supreme Court decision. DR & AJU advised that, in the case of a regular performance bonus, it is desirable for a general meeting of shareholders to decide on the limit of remuneration in consideration of performance bonuses, as such regular performance bonuses are covered under Article 388 of the Commercial Act. DR & AJU also suggested that special performance bonuses paid on an irregular basis may be excluded from the application of Article 388 of the Commercial Act if they are provided through the appropriation of retained earnings. However, considering the upcoming discussions that will follow the Supreme Court decision regarding the scope of the ruling’s application, it would be safer to go through a resolution at the general meeting of shareholders as in the case of regular performance bonuses, rather than opting for the appropriation of retained earnings.