FSS: "Performance-Based Compensation Systems in Financial Firms Focused on Short-Term Results Must Be Overhauled"

Seminar on Advancing Performance-Based Compensation Systems in Financial Companies Hosted by the Financial Supervisory Service

The Financial Supervisory Service announced on December 22 that it held a seminar at its Yeouido headquarters in Seoul with experts from academia and the legal community to discuss the advancement of performance-based compensation systems in financial companies.

This seminar served as a venue to closely examine the current issues with performance-based compensation systems in financial companies and to share a wide range of opinions from experts and market participants on the direction for future improvements.

In his opening remarks, Hwang Sunoh, Deputy Governor of the Financial Supervisory Service, stated, "Operating a performance-based compensation system that focuses excessively on short-term results can undermine the financial soundness of financial companies, and furthermore, significantly hinder the overall financial system and the protection of financial consumers." He emphasized, "The advancement of performance-based compensation systems in financial companies is an urgent task that can no longer be postponed."

Deputy Governor Hwang added, "Performance-based compensation systems should be designed in a way that does not impede the sound growth of financial companies, and in this process, the protection of financial consumers can also be strengthened. Financial companies and their employees should receive performance-based compensation that reflects not only their core work performance but also their contributions to financial consumer protection."

He continued, "When calculating performance-based compensation in financial companies, the linkage ratio with employees' long-term performance should be strengthened. Rather than merely complying with regulations in a formalistic manner, it is necessary to ensure a more substantive connection with long-term performance, such as aligning the investment holding period with the deferral period."

He also argued, "For work areas where excessive risk-taking may occur in pursuit of excessive performance-based compensation, such as real estate project financing, it is important to regularly review the appropriateness of the compensation system and make timely adjustments when necessary to preemptively mitigate risks."

A representative of the Financial Supervisory Service stated, "We will continue to focus on inspecting the vulnerabilities of current performance-based compensation systems in financial companies and correct unreasonable practices. We will fully consider the opinions raised by experts and industry participants at this seminar, and work with the Financial Services Commission and other relevant authorities to promote improvements to the performance-based compensation system in financial companies."