State-run banks feel reform heat from FSC
“State-run financial institutions must overhaul their own systems to be based on the principle of meritocracy in order to regain the public trust and break away from the public’s image of them as a ‘god’s workplace,’” Yim Jong-yong, chairman of the Financial Services Commission (FSC), said during a meeting hosted by the financial authority with heads of nine state-run financial institutions.
A god’s workplace is a sneering nickname for government companies that are run by former civil servants enjoying lucrative sinecures until their retirement.
The FSC chairman emphasized that companies that fail to implement performance-based promotion systems will have their operation budgets for next year frozen or cut.
The FSC promised to offer incentives to both employees and CEOs by allocating up to 1 percent of additional manpower budget and granting better evaluation scores for CEOs if they implement the new promotion systems.
The Korea Development Bank (KDB) and Export-Import Bank of Korea (Korea Eximbank) are under heavy criticism for failing to oversee the deteriorating situation of the shipbuilding and shipping companies. There are growing arguments that the companies’ creditors should take responsibility for their losses, especially in the case of KDB, the largest shareholder of the heavily-indebted Daewoo Shipbuilding & Marine Engineering (DSME).
KDB has been criticized for appointing external figures as CEOs and top executives at DSME, and for lax reviews of the company. Korea Eximbank has come under similar fire. As the business environment for both sectors became tougher, companies became insolvent, and the two banks have turned to the government for additional funding.
Over the years, KDB has shielded itself from restructuring, while private institutions have gone through major reforms, including downsizing, to enhance their competitiveness. Last year, the Korea Finance Corporation (KoFC), which split from KDB in 2009, was merged back into KDB. Yet all of the employees of KoFC were absorbed, and their salary remained unchanged.
As a result, KDB now has 3,246 employees, which is 452 more than in 2014. Meanwhile, the number of its branches, which increased from 61 to 82 in 2012, remained unchanged while branches of private commercial banks shrank 8 percent, as customers migrated to mobile and Internet banking.
Marketing and management costs of each branch increased 15.8 percent last year, contributing to a near 2 trillion won ($1.7 billion) net loss.
The nine state-run financial institutions referred to as gods’ workplaces guarantee jobs to former civil servants and offer top-tier salaries.
Of 321 state-run companies and quasi-governmental organizations, Korea Securities Depository employees were the highest paid, with an average of 104 million won annually.
Employees of the Korea Asset Management Corporation, the lowest paid, received an average 79 million won, according to Yim, referring to information from the website Alio.
After excluding some state-run research institutions where average salaries were high due to the specialized nature of the work, the troubled KDB was ranked third in best-paying public financial institutions, and Korea Eximbank was fourth, Yim said.
The government has concluded that a seniority-based promotion system and lax corporate cultures at the two banks were major factors in the insolvency crisis.
At the Tuesday meeting, Yim forced KDB and Korea Eximbank to take bold self-rescue initiatives, including implementation of a performance-based promotion system. Recapitalization can follow that, he said, indicating that recapitalizing them with state funding is impossible without such reforms.
Following the FSC’s announcement, finance branches of the nation’s two main trade unions - the Federation of Korean Trade Unions and the Korean Confederation of Trade Unions - held a press conference Tuesday announcing a series of strikes to protest the FSC plans.
The unions say the plans may lead to layoffs.
“The [moral hazard] issue of KDB and Korea Eximbank was caused by a mix of the performance-based promotion system and the government-controlled decision-making system,” said Kim Moon-ho, head of the finance branch at the Federation of Korean Trade Unions.
“The government should stop bringing the performance-based salary system to the discussion table, and instead work on not interfering in their management.”
Other trade union branches at the government ministries and nonfinancial public enterprises said they will join the strikes, as the Ministry of Strategy and Finance on Monday announced a wage cut plan for companies that have not implemented the performance-based promotion system.
The Finance Ministry announced on Monday that it will offer incentives worth 30 percent of base wages for all employees at those public companies that have already implemented the new wage system.
Of the 321 institutions, 44 percent have completed implementing the system as of last week.
The trade unions will start a protest Wednesday in front of the National Assembly in Yeouido, western Seoul, and hold a workers’ reunion on June 18 to express opposition to the performance-based system.
They also plan to file a lawsuit against Finance Minister Yoo Il-ho for violating the Public Enterprise Operation Act and the Labor Union Act.
BY KIM JI-YOON [firstname.lastname@example.org]