In­debted com­pa­nies dis­tort merit-based pay

The China Post - - COMMENTARY -

South Korea’s 30 ma­jor public cor­po­ra­tions were sad­dled with a com­bined debt of 429 tril­lion won ( US$366 bil­lion) as of the end of last year, ac­cord­ing to data sub­mit­ted by the Fi­nance Min­istry to a law­maker last week.

Over the pe­riod 2012-2014, how­ever, they paid nearly 3.5 tril­lion won in bonuses to their em­ploy­ees. It is par­tic­u­larly la­mentable that some public cor­po­ra­tions paid large bonuses to their work­ers while post­ing a net loss ev­ery year dur­ing the cited pe­riod.

One such de­plorable case is Korea Na­tional Oil Corp. The com­pany re­ported an an­nual net loss of 904 bil­lion won in 2012, 715 bil­lion won in 2013 and 1.6 tril­lion won in 2014, with its debt amount­ing to 18.5 tril­lion won last year. Nat­u­rally, it has re­ceived poor scores in the man­age­ment eval­u­a­tion of public cor­po­ra­tions.

Nev­er­the­less, KNOC last year paid a 39 mil­lion won bonus to its CEO on top of his an­nual salary of 108 mil­lion won. Its em­ploy­ees, whose av­er­age an­nual wage ex­ceeds 80 mil­lion won, re­ceived an av­er­age 17 mil­lion won in merit pay each.

What is fur­ther per­plex­ing is the Fi­nance Min­istry’s stance that there is noth­ing wrong with the gen­er­ous pay­ments by un­prof­itable and in­debted public cor­po­ra­tions. Few peo­ple seem to un­der­stand its ar­gu­ment that the amount of bonuses paid by them can­not be con­sid­ered ex­ces­sive as the man­age­ment eval­u­a­tion of public cor­po­ra­tions takes into ac­count var­i­ous in­di­ca­tors be­sides their debt and loss.

There is no rea­son to ex­empt public cor­po­ra­tions from the ba­sic per­cep­tion of per­for­mance­based pay. One can hardly ex­pect the coun­try’s public com­pa­nies to be­come more ef­fi­cient and com­pet­i­tive if they con­tinue to be al­lowed to make such un­rea­son­able pay­ments.

The money paid in bonuses may be bet­ter used to hire more work­ers at a time when ris­ing youth un­em­ploy­ment is caus­ing se­ri­ous eco­nomic and so­cial prob­lems.

It also makes lit­tle sense that many CEOs of public cor­po­ra­tions have re­ceived good grades on their per­for­mance while the eval­u­a­tion of their or­ga­ni­za­tions has re­mained low.

The Fi­nance Min­istry’s stance on this dis­crep­ancy again fails to con­vince the public. It says CEO eval­u­a­tions re­view not just nu­mer­i­cal per­for­mance but also other non­mea­sur­able fac­tors like lead­er­ship and long-term vi­sion. This ex­pla­na­tion may just an­noy the public, which has wit­nessed top posts at many public cor­po­ra­tions be­ing filled by peo­ple who are po­lit­i­cally well con­nected but lack ex­per­tise. This is an ed­i­to­rial pub­lished by The Korea Her­ald on Aug. 4.

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