Indebted companies distort merit-based pay
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.