If the financial authorities significantly strengthen the consumer protection category in performance evaluations for financial holding companies and bank chief executive officers (CEOs), it is expected to affect the bonuses paid to holding company chairs and bank presidents. CEOs of financial holding companies and banks where financial accidents occur frequently may receive lower performance evaluation scores, allowing boards of directors to cut their bonuses.
Five banks facing a penalty surcharge decision by the financial authorities over the misselling of Hong Kong H-index equity-linked securities (ELS) are expected to be affected immediately. In the financial sector, there is speculation that the bonus of Yang Jong-hee, chair of KB Financial Group, the final person responsible in the case of KB Kookmin Bank, which was notified of about 1 trillion won in penalty surcharges, 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 on the misselling of Hong Kong ELS before convening a sanctions review committee. The notified banks are five: KB Kookmin Bank, Shinhan, Hana, NongHyup, and Standard Chartered Bank Korea. KB Kookmin Bank, which had the largest sales amount, is said to have been notified of a combined amount exceeding 1 trillion won.
According to the financial authorities, sales of Hong Kong H-index ELS were highest at KB Kookmin Bank with 8.1972 trillion won. It was followed by Shinhan Bank with 2.3701 trillion won, NH NongHyup Bank with 2.1310 trillion won, Hana Bank with 2.1183 trillion won, Standard Chartered Bank Korea with 1.2427 trillion won, and Woori Bank with 41.3 billion won.
The financial authorities are preparing a plan to reflect consumer harms such as misselling in the performance evaluations of financial holding company and bank CEOs. The intent is to establish grounds to cut CEO bonuses when large-scale consumer harm occurs.
Most financial holding companies do not maintain a separate consumer protection category in executive performance evaluations. KB Financial's executive performance evaluation indicators consist of quantitative and qualitative assessments. The quantitative assessment is performance-focused and includes indicators such as return on equity (ROE), total operating profit, nonbanking income, and common equity tier 1 (CET1) ratio.
The qualitative assessment covers core competitiveness, global and new growth engines, financial platform innovation, soundness, environmental, social and governance (ESG), and internal controls. In the case of consumer protection, it is included in the internal control category, but the score allocation is minimal. Although KB Financial does not disclose the specific point allocation, the quantitative assessment, which is performance-focused, is known to account for about 80% of the total evaluation score.
Chair Yang Jong-hee received total compensation of 650 million won in the first half, including a 200 million won bonus. If the financial authorities finalize a penalty surcharge of around 1 trillion won, Yang's compensation could also be affected. KB Kookmin Bank decided to suspend sales of Hong Kong H-index ELS in Jan. last year, and Yang took office at the end of 2023.
Other financial holding companies could also see chairs' bonuses reduced if financial accidents occur. Hana Financial Group Chair Ham Young-joo received a total of 1.75 billion won in the first half, with bonuses alone amounting to 1.3 billion won. Shinhan Financial Group Chair Jin Ok-dong's total compensation was 871 million won, with a 446 million won bonus. Shinhan Bank and Hana Bank were notified of penalty surcharges of around 300 billion won each in connection with Hong Kong ELS.
Woori Financial Group Chair Yim Jong-ryong received compensation of 761 million won, of which the bonus was 332 million won.