"Banking Sector Must Disclose Performance-Based Compensation System... Considering Shareholder Evaluation System"

Financial authorities emphasized that banks should strive to transparently disclose and announce their performance-based compensation systems in relation to the issue of high-value performance bonuses in the banking sector. Additionally, they decided to consider measures to have severance pay evaluated by shareholders' meetings and other bodies.

According to the Financial Services Commission on the 16th, Vice Chairman Kim So-young stated at the 3rd working-level meeting of the Banking Sector Management, Sales Practices, and System Improvement Task Force (TF) held the previous day at the Government Seoul Office in Jongno-gu, Seoul, that external factors such as interest rate hikes had a significant impact on the large-scale profits of banks rather than the efforts of employees, and there is criticism that performance bonuses have effectively become fixed pay.

Vice Chairman Kim said, "Performance-based compensation needs to be paid considering mid- to long-term aspects based on actual performance rather than external factors," adding, "It is important for the banking sector to make efforts to improve itself by fully considering this and transparently disclosing the performance compensation system."

He continued, "While severance pay is an inevitable aspect for improving bank management efficiency, it is a decision involving considerable costs and must also align with the sentiments of shareholders and the public," emphasizing, "It is necessary to consider measures to have it evaluated at shareholders' meetings and other forums."

At the meeting, participants discussed directions for improving the performance compensation system and various factors to consider during the improvement process. Regarding bank performance bonuses, there was a point raised that it is necessary to consider whether they are actually based on employees' innovative projects or ideas, or simply due to the interest rate spread between loans and deposits.

There was also an argument that the performance compensation system should be designed to mitigate economic fluctuations. To this end, it was suggested that not only short-term but also long-term performance should be evaluated and payments deferred, while diversifying payment methods to include stocks or stock options in addition to cash.

Furthermore, opinions were presented that the performance compensation system should consider public aspects such as asset and capital soundness and consumer protection, focus on enhancing mid- to long-term future value, and actively disclose and announce the system, including the disclosure of remuneration committee agendas and the introduction of Say-On-Pay.

Vice Chairman Kim stated, "We will review whether additional improvements are needed by comparing and analyzing the proportion of labor costs, the composition of individual compensation, and severance pay between domestic banks and major global banks from the perspective of cost efficiency," adding, "Providing sufficient explanations to the public and financial markets about how banks' profits are composed and how they are used and distributed will greatly help resolve controversies."