If the financial authorities significantly strengthen consumer protection items in performance evaluations for financial holding and bank chief executive officers (CEOs), it is expected to affect the bonuses received by financial holding chairs and bank presidents. CEOs of financial holdings and banks where financial accidents occur frequently could receive lower performance evaluation scores, allowing the board of directors to cut their bonuses.
For now, five banks facing a penalty surcharge decision by the financial authorities over misselling of Hong Kong H-index equity-linked securities (ELS) are expected to be affected. In the financial sector, there is speculation that in the case of KB Kookmin Bank, which was notified of a penalty surcharge of about 1 trillion won, the performance bonus of Yang Jong-hee, chair of KB Financial Group, who holds ultimate responsibility, could be reduced.
According to the financial sector on the 10th, the Financial Supervisory Service (FSS) sent prior notices to each bank on the 28th of the past month before convening the sanctions review committee related to misselling of Hong Kong ELS. The banks notified were five: KB Kookmin Bank, Shinhan, Hana, NongHyup, and Standard Chartered Bank Korea. KB Kookmin Bank, which had the largest sales amount, was reportedly notified of a combined amount exceeding 1 trillion won.
According to the financial authorities, sales of Hong Kong H-index ELS were the largest at KB Kookmin Bank with 8.1972 trillion won. That was followed by Shinhan Bank at 2.3701 trillion won, NH NongHyup Bank at 2.1310 trillion won, Hana Bank at 2.1183 trillion won, Standard Chartered Bank Korea at 1.2427 trillion won, and Woori Bank at 413 billion won.
The financial authorities are preparing measures to reflect consumer harm, such as misselling, in the performance evaluations of financial holding and bank CEOs. The aim is to establish grounds to cut CEO bonuses when large-scale consumer harm occurs.
Most financial holdings do not have a separate consumer protection item in executive performance evaluations. KB Financial's executive performance evaluation indicators consist of quantitative and qualitative assessments. The quantitative assessment is performance-oriented and includes indicators such as return on equity (ROE), total operating profit, nonbanking profit, and the common equity tier 1 (CET1) ratio.
The qualitative assessment includes core competitiveness, global and new growth drivers, financial platform innovation, soundness, environmental, social and governance (ESG), and internal control. For consumer protection, it is included under internal control, but the weighting is minimal. Although KB Financial does not disclose specific weightings, it is known that the performance-oriented quantitative assessment accounts for about 80% of the overall evaluation score.
Chair Yang Jong-hee received a total of 650 million won in the first half, including a 200 million won bonus. If the financial authorities finalize a penalty surcharge of about 1 trillion won, Yang's compensation could also be affected. KB Kookmin Bank decided to halt sales of Hong Kong H-index ELS in Jan. last year, and Yang took office at the end of 2023.
Other financial holdings could also see chairs' bonuses reduced if financial accidents occur. Ham Young-joo, chair of Hana Financial Group, received a total of 1.75 billion won in the first half. The bonus alone amounted to 1.3 billion won. The compensation of Jin Ok-dong, chair of Shinhan Financial Group, totaled 871 million won, with a bonus of 446 million won. Shinhan Bank and Hana Bank were notified of penalty surcharges of around 300 billion won each in connection with Hong Kong ELS.
Yim Jong-ryong, chair of Woori Financial Group, received 761 million won in compensation, of which 332 million won was a bonus.