April 21, 2024

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[THE INVESTOR] Managing boards of Korea’s seven commercial banks held urgent board meetings late Monday evening and decided to adopt performance-related pay systems, drawing protests from labor unions.

How and when the banks will enforce the new pay systems remains unclear, as managing boards will have to reach an agreement with labor unions first, observers said.

Seven banks of KB Kookmin, Shinhan, Woori, KEB Hana, Standard Chartered Bank Korea, Citibank Korea and NongHyup held a board meeting and agreed to adopt merit pay systems, the Korea Federation of Banks said in a statement.

The timing of the boards’ decision comes soon after acting President Hwang Kyo-ahn’s comments at a ministerial meeting Monday that added weight to the initiatives driven by Financial Services Commission Chairman Yim Jong-yong. Yim had been named by President Park to succeed Finance Minister Yoo Il-ho, but the decision was effectively overturned as the rival parties agreed to keep Yoo in his post on Monday after Park’s impeachment Friday. Yim had repeatedly pushed commercial lenders to adopt the system since early this year.

The banks’ move sparked an instant backlash from bank unions, accusing the financial regulator of pressuring private banks to adopt the system.

“We learned that the FSC pressured bank boards to make a decision (on pay) by today,” Kim Moon-ho, head of the Korean Financial Industry Union, said in a statement.

“We strongly protest their dogmatic attempts to adopt the performance-based system by taking advantage of state confusion in the aftermath of the impeachment of the president,” he said.

The government has been pushing state-run financial institutions to shift from seniority and working year-based pay systems to performance-based ones. It has been seeking to expand the system to the private sector.

However, labor unions at the state-run Industrial Bank of Korea and Korea Development Bank filed lawsuits against the banks, arguing the adoption of the system without an agreement with the workforce should be nullified.

While state-run banks are still waiting for the court’s decision, unionized bank workers at commercial lenders are waging sit-in protests to demand boards reverse their decision.

“We opposed the merit-based system because it is almost impossible to gauge individual banker’s performance, as opposed to insurers. The bank should come up with the right measures to evaluate performance and agree with us upon that,” Han Yong, a member of KB Kookmin Bank’s labor union.

By Kim Yoon-mi/The Korea Herald (yoonmi@heraldcorp.com)