CEOs of public firms squeezed

Salaries of the CEOs of public corporations will be slashed by an average of 26 percent, Deputy Prime Minister Hyun Oh-seok announced yesterday, as part of reforms of heavily indebted public companies.

“The plan is to curb excessively growing debt at public institutions that has been a major drag on our economy and to put them back on a normal track,” Hyun said at a press conference yesterday.

The minister took the action less than a month after he summoned the heads of 25 public institutions to warn them against lax management practices.

“Debt and lax management of public companies are posing such a serious threat to the economy that we could all die,” Hyun said.

The Ministry of Strategy and Finance has control over the operations and budgets of all public institutions.

The strongest measure in Hyun’s reform plan seems to be the chopping of CEO salaries.

There are 295 public corporations or institutions across the nation whose total debt reached 493.4 trillion won ($469 billion) last year. That figure is even higher than the 446 trillion won national debt.

Primary targets of the government are 12 corporations that account for 83.6 percent of the aggregate debt.

The Korea Institute of Public Finance proposed Tuesday that those 12 entities should scale back on their investments in new projects ordered by the government to restructure debt.

They are the Land and Housing Corporation (LH), Korea Water Resources Corporation (K-water), Korea Railroad Corporation (Korail), Korea Expressway Corporation, Korea Rail Network Authority, Korea Electric Power Corporation (Kepco), Korea Gas Corporation (Kogas), Korea National Oil Corporation (KNOC), Korea Resources Corporation (Kores), Korea Coal Corporation, Korea Deposit Insurance Corporation and Korea Student Aid Foundation.

Kepco, the power distributor, and LH, which runs government public housing projects, are the most seriously indebted public corporations, unable even to pay interest on loans with their current operating profits.

The government decided to cut “excessive” salaries of chief executive officers at 43 major financial, infrastructure and energy corporations.

Instead of forcing direct cuts in basic salaries, the government ordered cuts in upper caps on incentives from a current 200 percent to 100 percent.

The heads of financial corporations, who receive 370 million won on average per year, will get 290 million or less from next year.

For example, the CEO of the Export-Import Bank of Korea will receive a 380 million won annual salary from next year, down about 26 percent from his current salary of 520 million won.

Kepco’s CEO will also face a 26 percent cut, receiving 280 million won or less from next year, down from 380 million won.

Permanent and nonpermanent executives at the institutions will also be subjected to cuts.

The 43 institutions should also set their own plans to reduce debt with a long-term goal of cutting the debt-to-capital ratio to 200 percent by 2017. The average ratio is at around 220 percent now. The average ratio of the 12 most indebted organizations is 324 percent.

In addition, all salaries, welfare benefits and reasons for the increased debt of public companies over the past five years should be revealed on a government-run website, Alio, to give the public access to that data, the government ordered.

The government will enhance the monitoring of companies’ efforts to improve their balance sheets by the third quarter next year and sack delinquent chiefs of institutions before their contracts end.

The Finance Ministry also named 20 organizations with lax management practices, including the Korea Racing Authority, Korea Exchange, Koscom and Kangwon Land.

BY Song su-hyun [ssh@joongang.co.kr]