Watchdog moves to revamp bonus schemes across finance sector amid public outcry

ATMs of major banks are seen in Seoul, April 27. Yonhap

By Jun Ji-hye

• Published May 15, 2025 3:33 PM KST

'Short-term incentive structures undermine firm soundness and financial system stability'

The Financial Supervisory Service (FSS) pledged to address short-term-focused incentive structures prevalent in the financial sector, warning that these practices could undermine the health of individual firms and threaten the stability of the broader financial system, officials said Thursday.

The comments came as the financial watchdog conducted a review of performance-based compensation systems across the financial sector. The review follows criticism that executives and employees received excessive bonuses despite growing concerns over the financial soundness of institutions amid rising defaults in real estate project financing and other issues.

According to the FSS, several institutions were found to be only nominally deferring performance bonuses or operating without clear criteria for adjusting or reclaiming them.

The watchdog noted that total performance-based bonuses awarded for 2023 amounted to 1.06 trillion won ($761 million), down 8.8 percent from 1.17 trillion won in 2022.

The average bonus per employee in 2023 was 139 million won. By position, CEOs received an average of 380 million won, other executives 200 million won and employees in investment-related roles 90 million won.

The government manages compensation practices under the enforcement ordinance of the Act on the Corporate Governance of Financial Companies. The aim is to encourage long-term, sound decision-making by requiring deferred payouts and clawback provisions in an effort to address concerns that employees at financial firms may take excessive risks to boost short-term performance bonuses.

Under current rules, at least 40 percent of performance bonuses must be deferred for three years or more.

The watchdog's recent review showed that 71.2 percent of financial firms set the deferral period at three years, 19.6 percent at four years and only 9.2 percent at five years or more. In 2023, the average deferral ratio for performance-based bonuses was 52.2 percent.

"Many financial institutions uniformly apply the minimum three-year deferral period without sufficient consideration of risk, and some were even found attempting to bypass the requirement," an FSS official noted.

The law also stipulates that deferred bonuses must be recalculated if losses arise from an employee’s responsibilities during the deferral period, and already paid bonuses must be adjusted if the financial statements used to determine them are later restated due to errors or misconduct.

According to the FSS, the total amount subject to potential adjustment in 2023 was 576.5 billion won, but only 56.8 billion won was actually adjusted.

"Many institutions have vague internal policies on bonus adjustments and clawbacks, and actual instances of reclaiming bonuses are very rare," the FSS official said. "This situation makes it challenging to effectively prevent employees from taking excessive risks or engaging in misconduct to pursue short-term gains."

In addition, the FSS found that some firms place heavy emphasis on certain performance metrics, resulting in an imbalanced evaluation that overlooks long-term achievements. Profitability indicators tend to be weighted heavily, while measures related to financial stability and consumer protection receive less emphasis, and many institutions lack long-term performance criteria altogether.

The financial watchdog will set key policy directions based on its latest findings in addition to previous disciplinary cases related to bonuses.

Furthermore, the FSS is reviewing measures to hold boards and executives responsible when excessive performance bonuses are paid despite justified grounds for adjustment or recovery.