Four securities firms under public fund support set aside $60mn in staff bonuses

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Four securities companies in South Korea that received public funds due to project financing (PF) insolvency have set aside performance bonuses totaling 77 billion won ($60.2 million) for their real estate PF staff, data showed Monday.

The Financial Supervisory Service said that the amount of bonuses to be given out by 22 securities companies with real estate PF exposure and subject to the governance structure law this year for last year’s performance reached 352.5 billion won.

Among these firms, the amount to be paid by those that received liquidity support through public funds in the second half of last year to their real estate PF staff stands at 77 billion won.

Critics argue that this behavior capitalizes profits while socializing costs.

The absolute size of the performance bonuses declined by 35.4 percent compared to last year at 545.8 billion won. However, the number of securities firms that received liquidity support related to real estate PF fell by only 21.2 percent during the same period, suggesting that the reduction in performance bonuses was not substantial even though they received liquidity support.

A more significant issue is that some securities firms failed to comply with financial authorities’ regulations, including the principle that compensation for performance should be deferred.

Under the governance structure law, performance compensation should be linked to long-term results and paid in stocks or similar assets, with at least 40 percent deferred for three years or more. However, a considerable number of securities firms were paying out performance bonuses entirely in cash, with cash accounting for 79.7 percent of the total.

The amount paid in stocks was only 2.8 percent.

Some companies set the deferral period to a maximum of nine years while some shorter than the legal period of less than three years.

“We will provide guidance to the securities firms found with deficiencies so that their performance compensation systems can be established and operated in accordance with the spirit of the law,” the FSS said. “We will also encourage voluntary improvements, such as establishing proper market practices related to performance compensation through the Korea Financial Investment Association and other channels.”