Korea Exchange Bank under fire for paying big bonuses

Korea Exchange Bank under fire for paying big bonuses. May. 14, 2011 01:32. redfoot@donga.com yunjung@donga.com.

Korea Exchange Bank is under criticism for giving employees bonuses worth 46 billion won (42.4 million U.S. dollars) despite the delay of financial authorities’ decision on allowing Hana Financial Group to take over the bank.

The bank is known to have given employees bonuses worth twice their wages in addition to regular bonuses worth 150 percent of basic salaries. Because of this, the bank`s expenses in the first quarter rose 12.5 percent to 376.7 billion won (347 million dollars) from the previous quarter.

In contrast, the bank`s performance in the first quarter fell 37.6 percent from 318.2 billion won (293 million dollars) over the same period last year to 198.6 billion won (183 million dollars) this year.

The country`s largest lender Kookmin Bank posted net profit of 740.5 billion won (682 million dollars), up 42.3 percent year-on-year.

Korea Exchange Bank said, however, “The special bonuses were to praise the efforts of our employees who showed strong performance that surpassed last year’s business goal.”

Critics say, however, that the bonuses constituted a moral hazard as the sales capacity of the bank weakened due to employee opposition to Hana’s proposed acquisition of the bank.

Bank employees used part of their bonuses to buy Korea Exchange Bank shares. A source at the bank’s union said Friday, “To invigorate the bank’s employee stock ownership association, workers gave part of their bonuses to the association,” adding, “We have collected 25 billion won (23 million dollars) and used the money to buy shares of our company amounting to 0.41 percent of the market capitalization.”