[Bank Bonus Analysis] ③ "Seomin Struggles with Loan Interest" Authorities Also Revise Performance System

Recently, as criticism of banks' 'interest profiteering' has grown, authorities such as the Financial Services Commission and the Financial Supervisory Service are also considering measures to transparently disclose banks' performance-based compensation systems and to provide compensation through various methods such as stocks and stock options.

A senior official from the Financial Supervisory Service stated, "We are continuously reviewing the performance-based compensation system and ongoing confidential discussions are taking place," adding, "Since the performance compensation system is on the agenda of the banking sector's institutional improvement task force (TF), the final direction will be settled after June."

The financial authorities are discussing improvement measures considering that the large-scale profits of banks were significantly influenced by external factors such as the surge in loan volumes due to COVID-19 and rising interest rates, rather than the efforts of executives and employees, and that performance bonuses have effectively become fixed pay.

Kim So-young, Vice Chairman of the Financial Services Commission, also mentioned the improvement of the performance compensation system during a meeting with the heads of 20 banks on the 6th. She emphasized that performance indicators should evaluate whether employees' innovative efforts were made rather than simply reflecting profit increases due to market fluctuations, and that 'public interest' aspects such as strengthening soundness and consumer protection should be sufficiently considered.

Currently, the performance-based compensation system for bank employees provides fixed performance bonuses typically based on 400% of the monthly base salary, with differentiated payments ranging from 280% to 560% according to each employee's key performance indicators (KPI). Special performance bonuses are distributed to employees upon achieving short-term management goals. Vice Chairman Kim stated, "It is necessary to evaluate not only short-term performance but also long-term performance, and to diversify payment methods including sufficient deferred payments as well as stocks and stock options."

Meanwhile, as financial authorities show such movements, banks are proactively presenting social return measures such as lowering loan interest rates. In response to criticism of the banks' performance bonus festivities, the four major banks?KB Kookmin, Shinhan, Woori, and Hana?recently announced a win-win financial plan worth 800 billion won. The four major banks plan to reduce household loan interest rates, including mortgage and credit loans, by 0.3 to 0.7 percentage points and also announced financial support plans exceeding 200 billion won for small business owners and small and medium-sized enterprises.