The revised law on executive compensation disclosure is taking effect Nov. 29 to improve corporate transparency and protect shareholders’ rights. But questions are being raised about its effectiveness as it has loopholes.

The current compensation disclosure rule is too lax. Under it, a listed company is only obligated to disclose two things ― the total and average amount of compensation it pays to its “registered” directors. A registered director is an inside director who is also a board member.

Under this disclosure system, the exact salary of each executive on the board is kept secret. This helps a chaebol owner who serves as the CEO of a group flagship hide the value of his compensation.

The new law has strengthened the rule by requiring a company to disclose how much money it pays to each of the inside directors on the board, if their annual compensation exceeds 500 million won.

But this new arrangement also has a big loophole. As before, it does not apply to non-registered executives ― inside directors who are not board members ― regardless of how much money they receive.

This has led to one chaebol owner after another stepping down as a registered executive of their group firms to avoid being required to disclose their compensation.

The latest examples are Orion Group chairman Dam Cheol-gon. He was preceded by Lotte Group chairman Shin Dong-bin, Shinsegae Group vice chairman Chung Yong-jin and Meritz Financial Group chairman Cho Jeong-ho.

The resignations of these chaebol owners as board members do not necessarily mean that they would loosen their managerial control. Although they do not attend board meetings, they still make important decisions.

Such a corporate governance system is exactly the one that the government has sought to reform, since it allows chaebol owners to exercise managerial control without taking any corresponding responsibility.

To address this problem, it is necessary to plug the loophole of the revised law. In doing so, the government can take a page out of the U.S. rule book.

The U.S. federal securities law requires a company to disclose in its annual proxy statement information concerning the amount and type of compensation paid to its chief executive officer, chief financial officer and the three other most highly compensated executive officers ― regardless of their status as registered or non-registered executives.

The government also needs to further strengthen regulations by requiring companies, as the U.S. law does, to disclose the criteria used to reach executive compensation decisions and the relationship between compensation and performance.