[NOTEBOOK]Korea’s financial firms in troubleChohung Bank paid a total of 2.8 billion won ($2.8 million) in bonuses to some 70 employees in its fund management department early last month. Some of them, including a vice president, received a large sum, up to 150 million won.
Then the union got furious. The union argued that in the banking industry, discord among employees was bound to amplify if the bonuses varied so much.
Woori Bank attempted to adopt a performance-based bonus system recently, but the plan was abandoned after the opposition from its union. The bank had decided that the existing bonus system, which evenly distributed the pool, wouldn’t properly reward outstanding employees, and had prepared a new human resources management system to pay bigger bonuses to employees who performed better than others.
The two cases illustrate how hard it is for a performance-based bonus system to take root in the financial services industry. After failing to receive the pay that they deserve, the talented people leave the company or they lose the motivation to improve themselves.
It is a noble idea to treat all employees equally. However, for the survival of a company, the most urgent task is to improve competitiveness. Citibank and Bank of America have established world-class financial institutions thanks to their performance-based reward systems. The two banks also do not have unions.
However, Korea’s situation is different. It has become a customary practice in some financial companies that a president secretly pays bonuses worth several times more than regular wages or gives promotions when he faces the opposition of the union. Mergers of financial services companies lead to large-scale strikes without fail, and the merged companies suffer from the neverending fights between labor and management. When companies receive public bailouts and require restructuring, unions demand to have written employment guarantees.
The backward union practices and the remains of the government-controlled financial firms set back the development of the entire financial sector here. While the nation’s manufacturing sector, including semiconductor and shipbuilding industries, is arguably the best in the world, the financial sector cannot compete with developed nations.
Let’s say we have manufactured automobiles and ships and barely earned several hundred billion won in profit. If the survival of the company is at stake, financial experts will come in for an operation called restructuring. The task is mostly given to foreigners because there are few Korean financial specialists capable of it. As a result, the foreign securities firms and private funds operating in Korea are earning what giant Korean securities companies would make.
The recent sale of the Korean brewery Jinro is a telling tale. Some criticize American investment bank Goldman Sachs for buying a stake in Jinro at fire-sale prices and call Jinro’s sale a serious outflow of national wealth. However, the problem is that the Jinro shares, which could have been sold at a premium, were categorized as non-performing loans and priced low. The incompetency of the creditor bank is to blame, not Goldman Sachs, which assumed the liability and the risk.
The government’s goal of becoming a “Northeast Asian financial hub” is a grand dream. However, if we lack the competitive edge in the financial industry, it is only a pipe dream. We have failed to nurture talent with expertise in international finance and fluent English skills. The rhetoric of standardized education might have been applied to the financial industry.
One president of a securities firm confessed: “CEOs of the financial companies are so busy taking care of union trouble that they barely have time to make management strategy and vision. I used to allot about 20 to 30 percent of the working day on dealing with the union issue, but once the management-labor troubles began, I spend 90 percent of the time on the union. I don’t have the environment to do my job as the head of a financial company.”
Most CEOs at financial firms are in a similar situation. A more serious problem is the lack of awareness. They have branded the financial labor unions as troublemakers and consider maintaining good relations with the union as the best solution.
With such an attitude, we won’t be able to create investment banks like Goldman Sachs and JP Morgan or private-equity funds like Lone Star Funds and Newbridge Capital. The unions and the management of the financial companies need to make drastic changes in their work practices to meet global standards. Otherwise, there will be no future for the financial industry of Korea.
* The writer is the business news editor of the JoongAng Ilbo.
by Park Eui-jun