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[Alpha Biz=(Chicago) Reporter Paul Lee] Despite concerns over poor real estate project financing (PF) last year, securities firms were found to have paid executives and employees more than 350 billion won in bonuses.
Cases of excessive bonuses in a short period of time without complying with regulations have also been detected. Although real estate PF insolvency has emerged as the biggest threat to the Korean economy since the Legoland scandal last year, PF bonus parties by executives and employees of securities firms continued.
Securities firms' delinquency rate of real estate PF loans is much higher than that of other financial institutions such as banks and mutual credit cooperatives. As of the end of March, securities firms' delinquency rate of real estate PF loans stood at 15.88%, up more than 10% point (p) from 3.37% at the end of 2020 and 3.71% at the end of 2021. It also jumped 5.5%p from 10.38% at the end of December last year. In short, the real estate PF insolvency has reached a critical point.
The Financial Supervisory Service said on the 24th that it was confirmed after checking the status of performance remuneration payments and compliance with laws of 22 securities firms that have real estate PF exposure (risk exposure) and are subject to the Corporate Governance Act.
According to the inspection, the total amount of performance compensation paid by 22 securities firms related to real estate PF last year was 352.5 billion won. Although it fell 193.3 billion won year-on-year, it is still worth hundreds of billions of won.
The amount of adjustment that was not paid due to the loss of the company increased from 6.4 billion won to 32.7 billion won in the previous year. Securities firms that received liquidity support in the second half of last year also saw their performance pay drop from 97.8 billion won to 77 billion won. Adjustment amount increased from 300 million won to 23.6 billion won.
The total amount of performance compensation at securities firms has decreased, but many securities firms have paid performance compensation in violation of regulations, the report showed.
The performance remuneration system for executives and employees related to real estate PFs at securities firms should be allowed to be linked to long-term performance in accordance with regulations, with some securities firms prioritizing short-term performance.
The five securities firms did not reflect the adjustment of deferred payment performance compensation at all in the bylaws. Some securities firms did not take into account the level of investment risk for each business when calculating performance compensation.
In particular, employees in charge of real estate PF work or those in charge of financial investment affairs ignored the regulation of delaying performance compensation. Of the 22 companies, 17 paid in full if the total amount of performance compensation was less than a certain amount.
AlphaBIZ 폴 리(hoondork1977@alphabiz.co.kr)
