Complete Overhaul of Construction Mutual Aid Association Operation Method After 58 Years

Bold Management Innovation and Transparent Decision-Making System Establishment
Reduction of Small Branches and Cutbacks on Business Expenses and Performance Bonuses
Introduction of Direct and Anonymous Voting for Operating Committee Elections
Exclusion of Association President, Chairman, and Operating Committee Members from Ex Officio Positions

[Asia Economy Reporter Jo Gang-wook] The operational methods of three construction-related mutual aid associations will be completely revamped for the first time in 58 years.

On the 9th, the Ministry of Land, Infrastructure and Transport held the Construction Industry Innovation Committee and announced on the 10th that it had finalized management innovation plans and operational committee restructuring plans for the three mutual aid associations in construction, specialized construction, and mechanical equipment.

The construction-related mutual aid associations were established in the 1960s with mandatory contributions from construction businesses amid insufficient financial functions such as depositing construction guarantees in cash with clients, and they are operated through guarantee fees borne by members.

According to the Basic Construction Industry Act, contributions to mutual aid associations are a prerequisite for construction business registration and guarantee subscription, and construction businesses are required to subscribe to contract performance and defect repair guarantees to carry out construction work.

Accordingly, the three mutual aid associations have grown into large financial institutions with total contributions of 12 trillion KRW, guarantee scale of 146 trillion KRW, and annual sales of 900 billion KRW.

While the mutual aid associations mainly sell statutory guarantee products, which makes operations relatively easy, there have been criticisms that the monetary benefits received by executives and employees are excessively high compared to this.

In response, the Ministry of Land, Infrastructure and Transport, the mutual aid associations, and construction-related associations formed a task force to prepare autonomous management innovation plans including branch restructuring, reduction of employee costs, and investment efficiency improvement.

First, the three mutual aid associations decided to reduce small branches, which have been criticized for management inefficiency and competitiveness decline.

Construction Mutual Aid currently has 39 branches, which will be reduced to 34 by the end of the year and drastically cut to 7 headquarters and 3 branches by June next year. Specialized Mutual Aid will reduce 32 branches to 28 by February next year and to 20 by February 2025. Mechanical Mutual Aid, currently operating 6 branches, will first reduce one branch by June this year and cut to 3 branches by February 2023.

Excessive business promotion expenses, performance bonuses, and welfare expenses for employees will be cut. Business promotion expenses will be linked to sales, reduced to 0.3% of sales next year and 0.25% by 2025, with usage guidelines established for public institution-level management.

Performance bonuses will be paid after labor-management consultations when prerequisites such as target returns on surplus funds or risk management are met, and payment levels will be linked to profitability and excess target returns. If Construction Mutual Aid’s performance bonuses last year were calculated by the new standards, they are expected to decrease by about half from 3.58 billion KRW to 1.74 billion KRW, and Specialized Mutual Aid is expected to reduce by more than 20%.

Welfare expenses will be reduced by about 20% by 2025 through labor-management consultations by integrating overlapping items and abolishing outdated items such as clothing expenses. Executive retirement pay will be reduced from 1.5 to 3 times monthly salary to 1 time.

Investment efficiency of the associations’ contribution funds will also be promoted. Although large surplus funds formed by members’ contributions average 4 trillion KRW, the return rate has been criticized as excessively low at 2-4% compared to other pension funds.

Therefore, a target return rate of 5% will be set by 2025, and this year, each association will aim to achieve at least 'minimum government bond (3 years) + 2.0%' depending on their situation. To this end, Construction Mutual Aid plans to gradually increase the proportion of income-generating asset investments from 2% last year to 25% this year and 50% in 2024.

The operational committees will also be restructured to ensure transparent and fair decision-making of the mutual aid associations. According to the Construction Industry Promotion Act, the operational committee deliberates and resolves basic policies on the association’s business and supervises execution, but some associations have been criticized for effectively managing the association centered on association presidents or city/provincial heads.

Therefore, direct and anonymous voting methods will be mandated to allow member operational committee members to be elected through objective procedures. If the association president, who is also a member, remains an ex officio operational committee member, the ex officio rule will be deleted considering fairness issues with majority/minority contributors, non-member companies, and regional representatives.

Association presidents and chairpersons will be excluded from ex officio operational committee membership. To enhance professionalism, one of the operational committee chair or vice-chair will be appointed as an expert, the term of office will be shortened from 3 years (with no limit on reappointment) to 2 years with a limit of one reappointment. The number of committee members will be reduced from 30 to 20 for efficient meeting operation, and important matters requiring Ministry of Land, Infrastructure and Transport approval will be subject to prior consultation.

The Ministry of Land, Infrastructure and Transport plans to implement these mutual aid association management innovation measures in April after revising the Enforcement Decree of the Construction Industry Act.

Kwon Hyuk-jin, Director of the Construction Policy Bureau at the Ministry of Land, Infrastructure and Transport, said, "Since the mutual aid associations have played a supporting role in strengthening our construction industry, this reform is expected to be a cornerstone for the next 100 years of the construction industry’s future," adding, "We will closely monitor the implementation process of this restructuring plan to ensure the reform of the mutual aid associations is completed without any setbacks."

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