In an effort to boost the competitiveness of domestic banks, financial authorities have decided to introduce a performance-based evaluation and to gradually discontinue the conventional salary class system, starting with state-run banks within the year.

Labor unions, however, are arguing that the performance-related pay is incompatible with the banking industry.

The Financial Services Commission said Monday that it will announce within the year a set of plans to expand the performance-based evaluation system in state-run banks -- Korea Development Bank, Export-Import Bank of Korea and Industrial Bank of Korea.

The key point is to convert the current system to performance-related pay, just like in nonbanking companies, or at least to increase the proportion of merit pay, according to officials.

Currently, most banks pay out a basic salary based on the rank of their employees and add a separate 10-20 percent performance-based bonus.

“Bank leaders all agree that a performance-focused evaluation system is needed,” said Financial Supervisory Service governor Zhin Woong-seob in a recent press conference.

“But there are obstacles (in introducing such system), such as resistance from labor unions.”

In fact, the Korean Financial Industry Union has made it clear that it will stage an all-out protest, should the government force the new salary system onto the banking industry.

“The performance-based payment system is suitable for aggressive industries such as insurance and securities, but not so much for banks that have to place more value on risk management,” said an official of the KFIU.

Unionists also pointed out that it is difficult to precisely evaluate the performance of individual workers when it comes to banking operations.

By Bae Hyun-jung (tellme@heraldcorp.com)