State-run Companies Show Poor Performance

Korea Coal Corp. raised its employees’ wages 4.36 percent on average last year, far surpassing the 2-percent level suggested by the government.

The Jeju Free International City Development Center was scheduled to finish 10 percent of the first-phase of its construction project of Seogwipo Port by late last year. However, it finished only 1.36 percent of the construction.

State-run corporations’ bad management has become the target of criticism.

According to the Strategy and Finance Ministry`s evaluation on management performance of state-run corporations and quasi-government organizations Friday, 24 state-run corporations whose own projects accounted for more than 50 percent of their entire projects under way got an average score of 73.2 in 2007, 2.5 points down from 2006. Similarly, 77 quasi-government organizations whose own projects accounted for less than 50 percent got an average score of 71.4 in 2007, falling 1 point from a year ago. At the request of the ministry, a management evaluation team consisting of 139 private sector experts including professors and accountants conducted the survey from March to June this year.

○ State-run organizations breached the rule of 2% wage hike

According to the evaluation, 32 out of 101 state-run organizations including state-run corporations and quasi-government organizations did not follow the rule under which only 2 percent of increase in labor costs is allowed.

The coal company had categorized incentives for employees as expenses until 2006. It could satisfy the maximum increase rate of 2 percent since it did not include the welfare cost in labor costs. However, it could not meet the target last year since its accounting practice to exclude the welfare cost was not allowed.

The Korea Securities Depository’s wages increased 3.37 percent on average in 2007. A source from the agency said, “Since the increase in salary class, which had not been included in the amount of wage increase until recently, was included in labor costs, the wage growth rate surpassed 2 percent last year.”

Some state-run organizations even raised wages, arguing that wages have not risen for the past few years. Hyeon Oh-seok, head of the evaluation team, said, “Some organizations turned out to raise labor costs so as to resolve the dispute between labor and management.”

○ Poor performances despite wage increase

Despite transparent accounting practices, some organizations got low scores due to their poor performances.

After recording a net profit of 780 million won in 2006, the Korea Elevator Safety Institute recorded a net loss of 980 million won in 2007.

Although the project to support the Korean Culture and Arts Promotion Fund hosted by Arts Council Korea received a more-than-usual budget in 2007, the number of applications to the fund decreased from 2006. The evaluation team explained that the council did not make much effort to manage the budget well.

Due to poor management, presidents of state-run corporations did not get good evaluation. Presidents of 14 state-run corporations including Korea Electric Power Corp., Korea Resources Corp., and Korea National Railroad Corp. got an average score of 77.5 in 2006. But, their average score fell to 74.1 in 2007.

The Finance Ministry gave a warning to 15 organizations such as Korea Coal Corp., the Jeju International City Development Center, Korea Science Foundation and the Independence Hall of Korea, all of which got low scores in the evaluation. Also, the ministry cut the budget for the organizations by 1 percent and decided to receive reports on plans to improve management from them and supervise whether they strictly follow the plans.

legman@donga.com