The financial authorities plan to induce financial holding companies and banks to reflect financial consumer protection performance in CEO performance evaluations. As the financial authorities set financial consumer protection as the top priority, this is seen as a commitment to reflect it in the management of financial holding companies and banks. CEO performance evaluation results affect performance pay and reappointment reviews.
According to the financial sector on the 24th, the Financial Supervisory Service recently reported this in a business report submitted to the National Policy Committee of the National Assembly. Specifically, to strengthen internal controls at financial companies and establish a sound management culture, it said it would "induce the inclusion and strengthening of consumer protection systems and operating performance in the performance evaluation criteria for holding company and bank CEOs to prevent large-scale financial consumer harm such as misselling."
The Financial Supervisory Service is reviewing compensation systems in the financial sector to improve factors that cause misselling and financial accidents and is preparing a compensation framework that fits this goal. As part of this, it plans to reflect consumer protection performance in the performance evaluations of financial holding company and bank CEOs.
In general, the key performance indicator (KPI) items for financial holding company chairs and bank presidents are centered on results. The KPI items for the CEO of A Financial Holding include quantitative indicators such as ▲total shareholder return ▲return on equity (ROE) ▲return on assets (ROA) ▲ratio of substandard or lower loans, and non-quantitative indicators such as ▲ESG (environment, social, governance) finance performance ▲risk management ▲digital ▲internal controls ▲personnel innovation.
Although consumer protection is included under internal controls, the weight is not high. Typically, quantitative indicators account for 70% to 80% of the total evaluation score.
An official at a financial holding company said, "It is true that the KPI is designed so that a high evaluation is given mainly when sales and net income grow and the stock price rises to enhance shareholder value," adding, "For the internal controls item, based on a perfect score of 1,000 points, it seems to be around 60 to 80 points."
Because of this evaluation practice, even at financial firms where major financial accidents occurred, CEOs receive tens of millions of won in annual performance bonuses. Depending on performance evaluations, some financial holding company chairs receive more than 1 billion won per year in short- and long-term performance pay.
Lee Chan-jin, governor of the Financial Supervisory Service, appeared at a National Policy Committee audit on the 21st and said, "There were many serious flaws in the performance indicators, and we are improving the KPI system," noting, "A structure has been repeated in which, if a product is launched and short-term results are good, a very large incentive is paid out, and when an actual accident occurs, no one takes responsibility."
Including consumer protection in performance evaluations is expected to affect the reappointment of financial holding company and bank CEOs. Boards usually refer to KPIs when evaluating performance for CEO reappointment. This means that for a CEO who saw a major financial accident during the term, it could work unfavorably for reappointment.
The Financial Supervisory Service also decided to focus its examination capacity on financial companies that neglect risk management and internal controls and pursue only aggressive performance growth.