The financial authorities are reviewing performance-based pay at each financial firm after collecting reports to draw up a plan to overhaul compensation systems. The financial authorities plan to first significantly strengthen consumer protection criteria in performance evaluations for holding company and bank chief executive officers (CEOs). Based on the review of the current compensation practices, they then plan to introduce measures such as clawing back executives' bonuses in the event of financial accidents.
On the 9th, according to the financial authorities, the Financial Supervisory Service recently received and has been reviewing data on performance-based pay for executives and employees from each financial firm. The Financial Supervisory Service is said to be checking the types and scale of bonuses and key performance indicators (KPI).
The financial authorities are also conducting a research project to overhaul financial firms' performance-based pay systems. The financial authorities plan to draw up a reform plan for performance-based pay systems at financial firms based on the results of this review and the research project.
The financial authorities plan to create grounds to reflect consumer harm, such as misselling, in executive evaluations and reduce bonuses accordingly. Currently, most performance evaluation items for holding company and bank CEOs are centered on results, and the weighting for consumer protection is relatively low.
The overhaul plan is expected to include introducing a "say-on-pay" measure that discloses executive pay at shareholders' meetings for shareholder approval, and a "clawback" system to recoup bonuses already paid if losses occur due to financial accidents. The financial authorities are preparing measures to improve the bonus system with the goal of revising laws to introduce the system in the first half of next year.
They are also reviewing a plan to defer for a longer period the bonuses of high-risk executives in charge of investment banking (IB) and other operations. Currently, at least 40% of performance-based pay must be deferred and paid over at least three years, and the idea is to extend this period. A financial authorities official said, "We plan to introduce a bill as soon as possible after a public hearing and collecting industry feedback."