S-Space Graduate School of Public Administration (행정대학원) Dept. of Public Administration (행정학과) Korean Journal of Policy Studies (정책논총, KJPS) Korean Journal of Policy Studies (정책논총) vol.14 (1999)
Reforming the Korean Public Sector: The use of the Performance Contracting System
- Issue Date
- Korean Journal of Policy Studies, Vol.14, pp. 15-40
- This paper examines the mechanics of the performance contracting system used in the Korean
state-owned enterprise(SOE) sector and studies the impact it had on the SOE performance. The
performance contracting system, called 'the Managerial Performance Evaluation System (MPES)'
in Korea, is designed to improve the principal-agent setting by formalizing the relationship
between the government and government-invested enterprises(GIE) through performance contracts.
Just prior to the implementation of the MPES, between 1980 and 1983, the GIE sector received
government subsidies totaling 3,544 billion Won or US$4.7 billion. Many accused the government
of 'politicizing' operations of SOEs by imposing political objectives on managements. With
mounting losses and public outcry concerning inefficient operation of SOEs, the government
enacted the 'GIE Management Act' in 1984 in order to 'harden' the GIEs' budget constraint.