Financial Research Institute: "Hangari-type Bank Workforce Structure Causes Lack of Expertise and Increased Costs"

Report on Improvement Measures for Human Resource Management Systems in Domestic Banks

Bank counter reference image / Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kim Hyo-jin] It has been pointed out that the workforce structure in the domestic banking sector is jar-shaped, with a low proportion of clerks compared to managers, exposing issues such as a shortage of professionals.

Kim Woo-jin, Senior Research Fellow at the Korea Institute of Finance, made this observation in the report titled "Improvement Measures for the Human Resource Management System of Domestic Banks," released on the 5th.

Following the foreign exchange crisis in the late 1990s, the workforce structure of the domestic banking industry transformed from a pyramid shape to a jar shape. According to Senior Research Fellow Kim, the jar-shaped structure with many managers acts as a factor causing decreased vitality and increased costs in banks.

According to Kim, in the case of domestic general banks, the ratio of managerial staff to clerks was 38.5 to 61.5 at the end of 1996 before the foreign exchange crisis, but due to a decrease in clerks, it changed to 60.2 to 39.8 by the end of 2008.

Although the proportion of clerks has been increasing since 2013, as of the end of 2017, the ratio was still 53.3 to 46.7, showing a trend of high-ranking positions with a relatively low proportion of clerks compared to managers.

Senior Research Fellow Kim forecasted, "If the workforce structure of banks continues on the current trend, issues such as the mass production of elderly personnel who do not meet productivity and consequent early retirements may persist."

Domestic Banks, Labor Costs Account for 64% of SG&A Expenses
"Factor Inducing Excessive Workforce Restructuring"

In domestic banks, labor costs account for 64% of selling, general and administrative (SG&A) expenses, and this high proportion of labor costs is recognized as a major cause of the high-cost, low-efficiency structure, leading to workforce restructuring beyond necessity, Senior Research Fellow Kim pointed out.

On the other hand, global banks have higher individual employee wages than domestic banks, but labor costs account for about 50% of SG&A expenses, which means that global banks have a high-wage, low-labor-cost structure.

Kim analyzed, "In foreign banks, turnover rates are very high among professional groups and low-wage clerical staff. This employment flexibility is considered the secret to maintaining low labor costs."

He also pointed out that paying the same compensation for the same rank and years of service regardless of individual capability, performance, or job may cause internal fairness issues, which could hinder the continuous growth of banks.

Senior Research Fellow Kim predicted that, like advanced banks, if an organizational system with strengthened sales capabilities is established, a bell-shaped workforce structure will be settled in the long term.

To this end, he said, "It is possible to consider separating and operating personnel into groups with guaranteed retirement age and free union membership but limited promotion, and groups aligned with recruitment, career management, evaluation, and compensation systems of advanced foreign financial companies."

"Consider Workforce Separation, Wage System Reform"
"Unified Recruitment Process Difficult to Respond to Market Environment"

Senior Research Fellow Kim presented a case of a domestic bank that reformed the wage system for administrative (contract) staff by lowering future wages for regular employees while guaranteeing employment and using the savings from reduced labor costs to convert non-regular workers into regular employees.

He explained, "It is evaluated as a successful model that brought about employee harmony and employment stability through concessions by regular employees, labor cost reduction, and new job creation. If the wage system is converted to correspond to job value, the pressure for restructuring regular employees will decrease, and there will be no reason to use non-regular workers."

Most Korean banks implement a recruitment process through unified open recruitment, making it difficult to flexibly respond to rapidly changing market environments and labor market trends, according to Senior Research Fellow Kim.

He advised, "In the long term, it is desirable to adopt a form of occasional, small-scale, and heterogeneous recruitment, but this recruitment type should be applied to expert groups or urgent staffing first and gradually expanded to other jobs."

Senior Research Fellow Kim also urged, "Recruitment and appointment, career development programs, and compensation standards should be applied differentially according to job. Individual performance evaluations and annual salary systems should be expanded, detailed job restructuring should be carried out, and conflicts minimized by utilizing labor union consultative bodies and encouraging active union participation."

This content was produced with the assistance of AI translation services.