NPS returns plunge, yet is it set to hand out over 30 billion won in bonuses?

[Financial News] Controversy is growing over reports that more than 30 billion won in bonuses will be paid to National Pension Service fund management staff, even if the fund’s investment returns fall to around half last year’s level. The average bonus would amount to 75 million won per person. Critics say the Service has set its target return—the benchmark for calculating bonuses—too low, creating a system in which bonuses depend more on market conditions or luck than on actual investment ability.
According to the Seoul Shinmun and the National Assembly, among others, bonuses for fund management staff are estimated at 30.886 billion won if the National Pension Service’s investment returns this year are assumed to fall to around 10%, from 18.97% last year. Based on 410 investment staff, that works out to an average of about 75 million won per person.
Returns would fall by about 47% from last year, but bonuses would decline by only 31.6%, remaining above 30 billion won.
The National Pension Service’s bonus evaluation method has been cited as the reason for this outcome.
The National Pension Service introduced an “absolute performance” assessment for calculating bonuses last year. Unlike “relative performance,” which measures how much higher returns were than the market average, absolute performance measures how much returns exceed a target set in advance.
The issue is that the National Pension Service set its target return at 5.5%.
Over the past five years, the National Pension Service’s average return was about 9.75%, while the market benchmark return was also about 9.59%. The absolute performance benchmark was set far below both figures. It is also lower than the 7–8% benchmark cited for performance fees in the private asset management industry.
As a result, analysts say the fund could receive a perfect score for absolute performance even if its return this year is only 10% and the market benchmark return reaches 20%.
The National Pension Service’s bonuses consist of 40% for relative performance, 30% for absolute performance, 10% in organizational bonuses, and 20% in long-service bonuses.
Politicians are criticizing the system, saying bonuses are determined by market conditions and low target returns rather than by fund managers’ actual performance.
However, the 30.8 billion won figure cited this time is an estimate, not a confirmed amount; it was calculated on the assumption that this year’s returns and the market benchmark return would be 10% and 20%, respectively.
Actual bonuses are scheduled to be paid in July next year, taking into account this year’s investment performance and other factors.
After the controversy arose, a National Pension Service official told Financial News, “Bonuses are calculated based on long-term performance (five years), not short-term performance (one year). Absolute performance accounts for 30% and relative performance for 40%, and many pension funds, including those in Canada, use absolute performance as a bonus criterion.”
The official added, “Bonus payment criteria are determined by the Performance Compensation Special Committee under the National Pension Fund Operation Committee, and we regularly review and improve the bonus system.”
The official also said, “The 5.5% target return was set because raising the previous 4.5% return assumption under pension reform by 1 percentage point would extend the fund’s depletion by seven years. Compensation for fund headquarters staff is around the level of the top 50% of domestic asset managers, and this has been cited as one of the causes of turnover. The bonus system was changed as part of efforts to improve compensation.”
[email protected] An Gaeul Reporter