Public Enterprise Executive Bonuses Cut... Government Overhauls Public Enterprise Management Evaluation for the First Time in 15 Years

Reform Plan for Public Institution Management Evaluation System

[Sejong=Asia Economy Reporter Son Seon-hee] From this year, performance bonuses for heads and executives of public enterprises will be reduced. Following the public trust in the entire public service sector plummeting due to the land speculation scandal involving some employees of Korea Land and Housing Corporation (LH) in the first half of the year, and the subsequent error in the public institution management evaluation score calculation, the government has taken decisive action.

On the 1st, the Ministry of Economy and Finance announced the 'Public Institution Management Evaluation System Reform Plan,' which includes lowering the performance bonus cap for heads of public enterprises from up to 120% of their base salary to 'up to 100%.' The performance bonus payment rates for heads of public enterprises have been reduced according to the comprehensive management evaluation grades as follows: ▲S grade 120%→100%, ▲A grade 96%→86%, ▲B grade 72%→60%, ▲C grade 48%→40%, and ▲D·E grades 0%. The performance bonus payment rates for executives such as standing directors and auditors (up to 100% of base salary) have also been lowered to certain levels by grade. These changes will be applied starting from this year's evaluation through revisions to the public enterprise executive compensation guidelines in the second half of the year.

Additionally, the 'mid-term performance bonus system,' which links performance bonuses to management results, will be expanded from the heads of public enterprises to include heads of 96 quasi-governmental institutions. Plans to gradually include executives of public enterprises and quasi-governmental institutions will be reviewed in the future.

Along with this, the Ministry of Economy and Finance decided to overhaul the entire public institution evaluation system in response to this incident. This is the first major revision in 15 years since the current evaluation method was implemented in 2007. Ando-geol, the 2nd Vice Minister of the Ministry of Economy and Finance, said, "We have completely reexamined the current evaluation system from the ground up," adding, "We have prepared fundamental institutional improvement measures to transform it into an evaluation system trusted by the public."

From this year, public institution management evaluations will shift to a 'continuous evaluation' system, and computerization will be promoted by creating a database (DB) of evaluation information. In particular, evaluations in the three major areas of ethics, safety, and financial performance will be strengthened to prevent situations where institutions receive high evaluations disconnected from public sentiment despite various misconducts, safety accidents, and reckless management.

Since chronic 'reckless management' in the public sector, characterized by accumulating massive debts every year, has been a persistent problem, financial-related evaluations will also be strengthened. Previously, each institution prepared financial indicators and achievement evaluations, which serve as the basis for performance evaluations, by themselves ('self-assessment'), but going forward, these will be entrusted to external experts. Especially for public enterprises with high financial risk such as excessive debt ratios, the reduction performance of debt ratios compared to the previous year will be included as an evaluation indicator. However, debts increased due to investment expansion for government policy implementation will be adjusted accordingly.

Regarding the error that occurred in the public institution management evaluation score calculation process in June, the Ministry of Economy and Finance announced the establishment of an 'Evaluation Verification Team' composed of experts such as accountants, and also formed a verification committee including the Ministry and the Public Institution Research Center of the Korea Institute of Public Finance to build a triple verification system. However, concerning concerns about infringement on evaluation independence, Vice Minister An explained, "This is to verify technical aspects during the evaluation process and does not involve the substantive content of the evaluation."

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