Pilot Program for Giving Public Entities More Management Leeway

The outcome of the 2010 public organization management evaluation shows an improvement compared to the previous year

The government is conducting a pilot program for expanding public entities’ management autonomy in a bid to proliferate management responsibility among public organizations.
Incheon International Airport Corp., Industrial Bank of Korea, Korea Gas Corp. and Korea District Heating Corp. have been participating in the pilot program, and they are found to have made much progress in their given tasks in the first half of this year, said Lim Hae-jong, director general of the Public Entities Policy Bureau at the Ministry of Strategy and Finance (MOSF). The following are excerpts of an interview with Lim, who spoke about policies to reform public entities’ management to the levels of advanced countries.
Question: Will you tell us about the outcome of the 2009 public entity management evaluation survey and follow-up measures?
Answer: The Ministry of Strategy and Finance (MOSF) evaluated the 2009 business performances of 96 public entities and 96 public enterprise CEOs in accordance with Article 48 of the Act on the Management of Public Institutions.
In an effort to ensure expertise and fairness in the course of making the assessments, a 55-member team for assessing public enterprise CEOs, headed by Korea University Prof. Lee Man-woo, and a 130-member team for evaluating public entities, headed by Seoul National University Prof. Lee Chang-woo, have been formed and operated separately and independently. The teams are comprised of experts from the private sector, including university professors and accountants.
The 2009 public organization business performance evaluations were made according to the four major guidelines, announced last Oct. 3. The 2009 public organization business performance evaluation teams were set up in mid-February, one month earlier than in previous years, and evaluation team members held workshops for seamless preparation.
On March 11, the MOSF set regulations on the formation and operation of public organization business performance evaluation teams to ensure transparency, insisting that team members be banned from conducting research, lectures and other favors for surveyed public entities. Public organization business performance evaluations are being made in a way to reduce the burden the surveyed public organizations may experience by letting evaluation teams visit and meet each public entity CEO for an interview.
Public organization business performance evaluations continue to be overhauled with a focus on performance-oriented metrical ones. The portion of metric indicators for evaluating public enterprises has changed from 45 percent in 2008 to 50 percent in 2009, while that of quasi-government agencies has increased from 40 percent to 45 percent. The scope of small and medium enterprises (SMEs) being evaluated only with metric indicators have expanded from those with fewer than 100 employees to those with fewer than 500 employees ― increasing from 25 SMEs subject to evaluations in 2008 to 40 SMEs in 2009. The outcome of the 2009 public organization business performance evaluation showed an improvement over the previous year due to the government’s focus on upgrading public entities to the standards of advanced countries and their improved business performance. Ninety-six public organization’s CEOs were examined for how much they achieved according to their own management plans. CEOs with a tenure of less than six months were excluded.
The CEOs were classified into six grades ― Excellent (more than 90 points out of 100), Outstanding (between 80 and 90 points), Good (between 70 and 80 points), Average (between 60 and 70 points), Insufficient (between 50 and 60 points) and Too Insufficient (less than 50 points). They were assessed on their leadership; public entry advancement, inclusive management efficiency and management-labor relations; and the performance of their own tasks at a weighted ratio of 20 percent: 40 percent: 40 percent, respectively. The results of the 2009 public organization CEO business performance evaluation classified five CEOs as “Outstanding,” 26 as “Good,” 45 as “Average” and 19 as “Insufficient.” Ninety public enterprises and quasi-government agencies were classified into six grades ― S, A, B, C, D and E ― on the basis of 20 to 30 indicators of three categories ― leadership/strategies (planning); management system (execution); and management performances (output). The outcomes of the 2009 public organization business performance evaluation graded one public entity as “S,” 22 public entities as “A,” 44 as “B,” 16 as “C,” 12 as “D” and one as “E.” The findings showed that the number of public entities graded “A” or higher increased, indicating better business performances compared to the previous year.
As follow-up measures of the 2009 public organization business performance evaluation, a public entity CEO graded “Too Insufficient” with less than 50 points has been recommended to be relieved from his post. The committee advised the government to give 19 CEOs a warning. Out of the 19, three were reprimanded for the second straight year, but they had already quit their positions, so they were given only a single warning.
Each CEO’s performance pay is also determined based on the overall points combining his or her own evaluation points (total 50 points) and his or her public entity evaluation points (total 50 points). CEOs graded “Too Insufficient” with less than 50 points were given no performance pay. CEOs who were given a warning for the second straight year have their performance pay halved. Starting this year, public entity executives and staff members’ performance pay is calculated in consideration of their public entity and CEO evaluation results. Their performance pay is determined at the same rate as that stemming from their public entity evaluation outcome if their CEO is graded as “Average,” but the amount rises or falls if their CEO is classified as “Good” or “Insufficient,” respectively.
Q: Will you give details on steps to innovate the management of public entities?
A: Last November, the government revised its guidelines on deliberating welfare and benefit budgets of public enterprises and quasi-government agencies during 2010 so as not to allot excessive amounts. Free financial support for their children’s tuition fees has been halted and changed into loans, while the interest rates of housing loans for public entity officials are determined in consideration of current market interest rates.
In an effort to ensure financial soundness of in-house labor welfare funds, the government set the scales of contribution rates according to per capita accumulative fund amounts.
The government has pushed ahead with institutional reforms so as to advance labor-management relationships of public entities to standards of their counterparts in advanced countries since 2009. Starting in 2009, matters related to labor-management have been among things put on public notice. During 2010, public notice periods on labor-management relationships have been reduced or frequent notice systems have been introduced to ensure better transparency.
Public entity CEOs have been evaluated on how much they have improved on labor-management relationships starting in 2009. The weighted rate of the category in the 2010 public entity CEO evaluation will rise from the current 15 percent to 20 percent. Counting the category in the 2010 public entity evaluation will be contemplated, so as not for CEOs to voluntarily sign unfair collective agreements with labor unions. Labor and management have been asked to improve unfair collective agreements through autonomous consensus based on such institutional systems as notice and evaluation. Labor and management at 86 public entities agreed to amend unfair collective agreements during the period between May and December 2009. The government plans to keep on monitoring these practices so that labor and management can sign a collective agreement in a rational fashion in order to enhance their management efficiency. It strives to have public entities follow a ban on paying wages to full-time labor union workers and the time-off system in accordance with the revision of the Act on Labor Unions at the earliest possible date.
Q: Will you elaborate on the current status and future plans of steps to privatize public entities?
A: Of 24 public entities subject to the privatization process, there are six that have already been sold or listed. The rest are undergoing prior preparatory processes, including valuation of assets and sell-off notices. The government announced plans to reform public enterprises in 2008, calling for the privatizing of 19 public enterprises including the Korea Development Bank (KDB), and selling its stakes in five public entities including the Incheon International Airport Corp. (IIAC).
Six public enterprises, including Korea Asset Investment Trust Co., Grand Korea, KOPEC E&C and Korea District Heating Corp., have been auctioned off or listed on the stock market since 2009. The auctioning of three others, including Korea Real Estate Investment Trust Co, have been put on public notice. Starting in 2010, seven public enterprises, including the IIAC have begun to launch sell-off preparation processes, but the privatization of Korea Housing Guarantee Co. has been delayed until 2015 due to expanded public tasks.
The Financial Services Commission is to establish plans to privatize the KDB and Industrial Bank of Korea (IBK), taking into account the development of the domestic financial industry. The framework for privatizing the KDB, including a spin-off, has already been completed, but detailed plans on auctioning off the KDB are to be established along with steps to improve the bank’s financial conditions. Small stakes of the IBK are to be offered on the market, but controlling stakes will be determined according to the progress of the settlement of Korea Finance Corp. (KOFC)’s policy loans.
The MOSF will concentrate its surveillance on public entities whose privatization may be delayed in cooperation with relevant government agencies in the years to come, and supplementary steps will be in place in consideration of market conditions and whether or not the government’s small stakes stand in the way of a sale
Q: Will you explain the pilot program in which four public entities are given more management leeway?
A: The government is implementing a pilot program to expand public entities’ management autonomy in a bid to proliferate management responsibility among public organizations. Four public entities ― Incheon International Airport Corp., IBK, Korea Gas Corp. and Korea District Heating Corp. have been selected as the participants of the pilot program from among the 15 applicants.
This past January, each CEO of the four public enterprises has signed an agreement on autonomous management with their respective supervising government agency head, which stipulates the scope of expanded autonomous management and their corresponding task goals ― three to four core task goals, varying according to the public enterprise. The government took follow-up measures, including the standards of evaluating the participants of the pilot program in June to conduct the 2010 business performance evaluation survey by classifying them into three grades ― “Excellent,” “Average” and “Insufficient.”
CEOs of public enterprise graded “Excellent” will be recommended to retain their position, while those whose organizations are classified as “Insufficient” will have their autonomous management rights rescinded.
Thanks to efforts by the four participants in the program, they have made extensive strides in their given task goals in the first six months of the year. The government plans to make continuous efforts in the second half of the year to make the pilot program a success and explore a successful model. Coming December, it plans to take an extensive look at the outcomes of the pilot program to decide whether or not it will be expanded. nw

Lim Hae-jong, director general of the Public Entities Policy Bureau at the Ministry of Strategy and Finance (MOSF)