The National Pension Service (NPS) is pushing forward a plan to raise the basic pay for in-house fund management staff by about 9% on average in 2016, or three times the rise expected for its other employees, a move seen as an effort to stem core manager outflows ahead of its office relocation to a provincial city, about three-hour drive from Seoul.
In addition to the departure of three senior officials at the NPS’ fund management division in June, about 10 other managers are known to have left the world’s No.3 pension fund recently. On July 27, the NPS posted a job opening for about 30 investment specialists. In the job posting, it highlighted the fact that the fund management division is set to move early in 2017 to Jeonju, the capital of North Jeolla Province, in red and bold letters.
“We have secured a budget for a basic pay increase after consultations with relevant departments in order to give better treatment to fund managers,” a high-ranking official of the NPS told the Korea Economic Daily on August 2. He noted that the pension fund has set the rate of a base pay rise at about 9% for fund management officials this year, about three times the increase (about 3%) for other NPS staff.
An NPS source said: “In order to prevent disadvantages caused by deviating from the guideline (3%) for state-run companies’ pay raise, we are in the final stage of negotiations with the Ministry of Strategy and Finance.” The NPS expects the negotiations to be completed as early as this month.
It is the first time that the NPS, which manages $450 billion of assets, differentiates the pay raise rates between fund managers and other general staff since it set up the fund management division in 1999. Unlike general NPS employees who are hired as permanent workers, its in-house fund managers are contracted for three years. The discrepancy between the salaries of the NPS fund managers and other private sector managers is made up mostly by an increase in performance bonuses.
Salaries of fund managers at major South Korean pension and savings funds lag behind those of private asset management firms and other global pension funds. Last year, annual pays for the NPS’ fund managers averaged 84.5 million won ($76,330) which consisted of a basic pay of about 68.3 million won and a performance bonus of 16.2 million won. The average pay included that of its chief investment officer. Given that performance bonuses are linked to a basic salary, the prospecitve base pay increase may lead to a double-digit hike in this year’s annual salaries for the NPS fund managers.
By comparison, Canada Pension Plan Investment Board’s (CPPIB) total personnel costs alone were 594 million Canadian dollars in the last fiscal year for a workforce of over 1,200 people, according to a publication, Investment & Pensions Europe. That means the average cost of a full-time quivalent employee at CPPIB is 495,000 Canadian dollars ($385,000), far above the global average found by CEM Benchmarking, whose study only focused on key staff.
Last month, the NPS’ fund management committee approved of last year’s performance bonus payouts at the level of 23.7% of base pays, which represented a 4.7% point hike from the 19% of 2014. In an effort to keep fund management staff before the office relocation out of Seoul, the NPS’ fund management division had originally aimed for a 10% point rise for last year’s performance bonuses, compared with the previous year’s level. But the committee capped the annual increase rate to the 4.7% point, citing below-target investment performance of the national pension fund last year.
WORKING CONDITIONS, ENVIRONMENT OVER SALARIES
However, the expected pay raise may not be enough to stop outflows of key fund managers triggered by the planned move of the NPS fund management division to Jeonju. “Fund managers at the National Pension Service put more priority on working conditions and environment rather than salary levels, generally,” said another NPS source. “In particular, most of double-income couples and working moms are seriously considering quitting their jobs.”
As part of the government efforts to achieve balanced development of the country, big public organizations have been relocated outside Seoul. But asset management offices of other major pension and savings funds in South Korea, as well as major financial services companies, are based in Seoul. For the Government Employees Pension Service, of which the headquarters are located in Jeju Island, a southern island of South Korea, its fund management office is also in Seoul.
As the NPS is growing in assets and its organization becomes large, increased administrative works such as reporting to government offices and parliament and bureaucratic culture are cited as another reasons to prompt the departure of employees. Assets under management at the NPS are expected to peak at 2,500 trillion won in 2043, or five times the current asset size.
In September, NPS plans to hire new 30-odd asset managers to handle investment strategy, equities and alternative investment, and risk management. The applicants are required to have at least three-year experience in the relevant fields, or seven-year experience for senior positions. Fund industry observers keep an eye on the recruiting process of the NPS, seeing it as a test of whether professional asset managers are willing to work for the NPS, despite the planned relocation to Jeonju, a city of 650,000 residents. Seoul has a 10 million population.
By Dongwook Jwa and Chang Jae Yoo
<Edited by Yeonhee Kim>