By Yoon Young-sil | Business Korea | January 23, 2025
FSC and FSS Announce Best Practices for Insurance Executives’ Compensation Systems
The Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) announced the “Best Practices for Compensation Systems for Insurance Executives” on Jan. 23. The best practices were established during the 6th Insurance Reform Meeting held on Jan. 21. The new policy mandates that starting next year, a significant portion of insurance company executives’ performance bonuses must be paid in stocks.
The best practices aim to prevent executives from focusing solely on short-term performance by aligning their compensation with the long-term health of the company. According to the guidelines, insurance companies must pay a substantial part of performance bonuses in non-cash assets, including stocks. The scale of these bonuses should be determined by considering the insurance company’s Korea Insurance Capital Standard (K-ICS) and other soundness levels. Additionally, the criteria for performance evaluation, the reflection ratio of each indicator, and the deferred compensation adjustment policy must be disclosed.
Kim So-young, vice chairman of the Financial Services Commission, emphasized the importance of this shift, stating, “The insurance industry has a much longer time horizon compared to other financial sectors, so the company’s compensation and performance systems should also be managed to align with long-term benefits.” He further urged, “Please promote the improvement of the company’s performance system and governance structure to align with international standards.”
Insurance companies are encouraged to voluntarily adopt these best practices this year, with a mandatory pilot operation set to begin in the first quarter of next year. This phased approach allows companies to gradually adjust to the new practices and provides regulators with feedback to refine the policies.
The introduction of these best practices is a significant step towards enhancing the governance structure of insurance companies. By tying a substantial portion of executives’ compensation to the company’s long-term performance, the FSC and FSS aim to ensure that executives are incentivized to make decisions that benefit the company and its stakeholders over the long run.