Does the CEO Receive Severance Pay? Absolutely!
If you're a CEO wondering whether you're entitled to severance pay, the answer isn't as simple as it seems. Your eligibility depends on your status as either a shareholder or an employed executive. Let’s dive deeper into this nuanced issue.
Scenario 1: The CEO is also a Shareholder
If you're a CEO who also holds shares in the company, the situation becomes less clear. In such cases, severance pay isn’t typically a given—it depends on whether your employment terms and compensation, including severance, were approved at a general meeting of shareholders. This approval process is essential to formalize the arrangement and avoid disputes.
Scenario 2: The CEO is an Employed Executive (Non-Shareholder)
If you’re a CEO who is not a shareholder but rather a hired executive, severance pay should generally be outlined in one of the following:
Employment Contract: Include explicit clauses regarding severance pay.
Company Policies: Implement an internal severance policy that applies to all employees, including executives.
Without these formal agreements or policies, disputes can arise when you leave the company. The lack of clarity often leads to costly legal battles where courts must evaluate issues like:
Authority of Representation: Did the CEO have powers beyond those of a standard employee?
Employee Status: Does the CEO’s role still qualify them as an “employee” under labor laws?
In the absence of proper documentation, these disputes can lead to unexpected liabilities for the company and create unnecessary conflict.
Legal Framework in Korea
Under Korean Labor Standards Act:
Employees are entitled to severance pay if they have worked for at least one year and have worked an average of 15 or more hours per week.
The law generally excludes executives with decision-making authority unless they also perform regular employee duties.
However, Korean courts often review the substance of the role rather than the title. Even CEOs can qualify as employees if their responsibilities align more closely with those of a worker than a corporate decision-maker.
Key Recommendations
To avoid future risks for both the company and the CEO:
Draft a Clear Employment Agreement: Outline severance pay terms explicitly.
Establish Internal Regulations: Create a severance pay policy that includes executives and secure shareholder approval.
Obtain Shareholder Approval: Ensure all compensation, including severance pay, is approved during a general meeting of shareholders.
These measures not only protect the CEO but also shield the company from potential liabilities.
Why Severance Pay Matters for CEOs
Even CEOs deserve fair treatment at the end of their tenure. Disputes over severance can lead to lengthy and expensive litigation, which benefits no one. By addressing these issues proactively, both parties can ensure a smoother and more amicable transition.
Addressing severance pay for CEOs is not just a legal obligation but a professional courtesy that helps maintain trust and goodwill.
If you’re a CEO or a company seeking to formalize such agreements, consult a labor attorney or corporate governance specialist to navigate the complexities and stay compliant with Korean labor laws.
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