While it is pointed out that banks are holding a performance-based party alone amid the suffering of high interest rates, the financial authorities will focus on discussing ways to improve the bank’s performance-based bonus system on the 15th.
As the recent merit-based party right before the bankruptcy of Silicon Valley Bank (SVB) became controversial, it is expected that the Korean financial authorities will come up with intensive improvement measures.
◆Discussions on SeonPay, Clawback, etc.
On this day, the financial authorities plan to meet with experts and representatives of each industry to hold the 3rd working group related to the ‘Banking Management, Sales Practices and System Improvement TF’ and discuss ways to improve the bank’s incentive system.
This is a follow-up measure by the financial authorities after President Yoon Seok-yeol criticized banks with determination last month.
At a meeting of senior secretaries presided over on the 13th of last month, President Yoon said, “The people are in great pain due to the high interest rates in banks,” and ordered “the Financial Services Commission to prepare related measures so that the people do not feel uncomfortable with the money feast at the banks.”
President Yoon is known to have a strong sense of problem with the fact that banks achieve maximum performance based on this and even hold performance-based bonuses in difficult economic conditions at home and abroad, such as high interest rates.
Accordingly, the financial authorities plan to examine the current status of the remuneration system and shareholder return policy, such as performance-based pay and severance pay, and look into whether there are any plans for improvement.
In particular, it plans to actively consider introducing the ‘Say-On-Pay’ system, which gives shareholders the right to vote on executive remuneration.
Seonpay is a system implemented in the United States and the United Kingdom.
In the United States, according to the ‘Dodd-Frank Act’, which was created in the wake of the global financial crisis in 2008, listed companies are required to have their executives’ salaries reviewed at least once every three years. The United Kingdom also requires listed companies to present the status of executive salary payments to shareholders’ meetings through the Companies Act.
In the meantime, some in the financial sector have raised criticism that the government directly intervenes in bank incentives, but with the introduction of SeonPay, many of these criticisms are expected to subside. Shareholders directly monitor and check the remuneration of management.
In addition, the financial authorities are planning to review measures to strengthen the ‘claw-back’ system, which collects or cuts employee incentives when profits fluctuate at financial companies.
The cloback system refers to a system in which performance pay is withdrawn or withheld when an executive causes a loss to the company or behaves unethically.
In fact, according to the regulations on governance structure of domestic financial companies, it is specified that the performance compensation scheduled for deferred payment will be recalculated in the event of a loss to the financial company. However, this is in a nameless state, such as not being properly implemented yet.
In this regard, Vice Chairman Kim So-young of the Financial Services Commission said at the 1st bank TF meeting held on the 22nd of last month, “To improve the remuneration system, we will look at the introduction of Seion Pay and strengthen cloback, and review policies for shareholder return such as dividends and share buybacks.” Emphasized.
Controversy over merit-based party right before SVB went bankrupt
According to CNBC, just hours before regulators at the U.S. Financial Protection and Innovation Office seized the bankrupt SVB, it was reported that SVB had paid annual bonuses to its employees.
It is not known how much the bonus is in detail, but it is said that SVB employees receive $12,000 (about 16 million won) and executives receive up to $140,000 (180 million won). In addition, right before bankruptcy, it was found that the CEO of SVB sold a large number of shares in the company.
The current SVB bankruptcy is being pointed out as being due to the incompetence of CEO Greg Becker. CNN reported the day before that most of SVB’s employees were firmly angry, pointing their fingers at CEO Becker.
Reportedly, SVB employees are taking issue with the CEO’s misjudgment. It is known that he did not hesitate to say the expression “absolutely idiotc”, saying that hasty public statements about poor financial conditions ruined the company.
In this regard, criticism of bank employees’ moral hazard is expected to spread worldwide.
In a situation where SVB’s poor liquidity management is concerned about the bankruptcy of startups, rather, SVB executives and employees benefited from bonuses and other things.
This is similar to how financial institutions on Wall Street held a bonus party during the 2008 financial crisis.
As a result, it is expected that the Korean financial authorities will also discuss ways to improve the performance-based pay system more intensively at the meeting.
An official from the financial authorities said, “Discussions on improving the bank’s incentive system will continue until late in the afternoon.”
Source: Donga
Mark Jones is a world traveler and journalist for News Rebeat. With a curious mind and a love of adventure, Mark brings a unique perspective to the latest global events and provides in-depth and thought-provoking coverage of the world at large.