Merit pay at South Korea's state financial entities

By Park Sae-jin Posted : February 1, 2016, 16:19 Updated : February 1, 2016, 16:19

[Aju News DB]


South Korea's top financial regulator on Monday urged state-controlled financial institutions to enhance their competitiveness by introducing a performance-based wage system as part of broad reforms in the banking sector.

The new system was spelled out by Yim Jong-yong, chairman of the Financial Services Commission (FSC), at a meeting with nine public financial institutions, which followed the government's decision last week to get workers at public agencies to adopt a merit-based payment system.

The commission said the new system would affect more than 11,000 employees at the nine entities, excluding the lowest-ranking workers and those in technical posts.

Bank workers will be paid differently based on their achievements instead of the salary step system under which their monthly payment goes up automatically according to the number of consecutive years of service.

The old system as well as "self-protectionism", which has been prevalent among domestic bank employees to guard their position, has weakened a competitive edge in South Korea's financial sector, Yim said, adding a competitive system would  be adopted in other areas such personal affairs, job training and recruitment.

"They are well paid, but their competitiveness is relatively weak, while the level of their contribution at our economy is low," Yim said.

Given the significance of their roles and responsibilities, employees at the Korea Development Bank and other state entities must set up a "good" example so that the new system could spread to private banks, he said.

The new system reflects the government's determination to push ahead with financial and corporate reforms at a time of growing uncertainties at the global financial markets, he said, pointing to low oil prices, slumping growth in China and a potential US rate hike.

FSC data showed the amount of foreign capital which has dribbled out of South Korean markets from June last year through January this year was estimated at 21.3 trillion won -- 16 trillion won in stocks and 5.3 trillion in bonds.

But Yim said the situation is still "manageable", citing ample foreign exchange reserves which stood at $367.9 billion at the end of last year and South Korea's current account surplus which rose to a record high of $105.96 billion in 2015 from $84.37 billion a year ago.

"Our policy should focus on stabilizing the financial sector through proper management of debt" at the private sector, he said.

Charles Lim

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