POSCO held its 2016 Investor Forum in New York on February 12. From left, Merrill Lynch Managing Director, Patrick Doyle; Interpreter; POSCO President Ohjoon Kwon; Vice President Jung Woo Choi;, and Senior Director Min Yong Noh.

Officials from 24 investment institutions in New York, including McKinsey & Company and TIAA-CREF, attended the forum and expressed their interest in POSCO’s management activities, including “Innovation POSCO 2.0.”

POSCO announced that its sales revenue and business profit margin dropped year on year due to the company’s poor performance following the slump in domestic and international market conditions last year. POSCO also added that its loss recorded 1.56 trillion KRW, leading to a 96 billion KRW year-on-year net loss during the term.

Despite the slump in the market, sales revenue and profit margin achieved a stable status, reaching sales volume of 35.34 million tons—the largest in POSCO’s history. Moreover, POSCO noted that its net profit during the term grew through the increase of sales of high value-added products, such as World Premium (WP) products, as well as the increase of solution marketing-related sales.

President Ohjoon Kwon greeting overseas investors on February 12 at Lotte New York Palace Hotel.

President Kwon continued with a Q&A session with investors after the presentation on management performance and management planning.

In response to China’s recent plans to reduce its steel productivity by 100 million tons, President Kwon stated, “The problem of China’s steel oversupply has lasted for a few years and the market imbalance has become worse after the export of products that are priced lower than the marginal unit cost. The Chinese government has consistently shown its determination to resolve the oversupply issue, but its efforts did not amount to essential reduction.”

He also added, “However, considering the central government’s recent announcement by Premier Li Keqiang regarding the reduction of obsolete equipment, and the fact that 80 percent of Chinese steel companies experienced loss since the second half of 2015, the feasibility seems to be higher than before.”

“As the steel price has shown small rebound at the beginning of the year, fast market recovery can be expected if the structural regulation is executed properly,” Kwon stated. “We have exceeded the goal of restructuring in sub-companies since Innovation POSCO 2.0 was announced last year and achieved a bigger amount on hand than that of 2009 through restructuring assets. We also raised performance in original technology sales through moving 1FINEX and CEM technology and exporting related technologies. We will continue to strengthen our competitiveness of steel this year by collaborating all capacities on acceleration and structure innovation, which includes business structure, cost structure, profit structure and consciousness structure.”

Regarding technology competitiveness maintenance through POSCO’s R&D investment management, Kwon noted, “POSCO has a larger R&D investment compared to other global competitors and is maximizing R&D investment efficiency through intimate cooperation and a trading relationship with the Technology Institute, along with production engineers. We will continue to focus on strengthening POSCO’s original technology competitiveness this year by including the sales force in the cooperation relationship for completing the solution marketing model.”

POSCO was the first Korean firm to be listed on the New York Stock Exchange (NYSE) in 1994 and President Kwon himself rang the closing bell at NYSE last February in celebration of the twentieth anniversary of the company’s listing.

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‘Motivation’ is a significant factor that lets people to hold on to their work with passion. Therefore, POSCO is making an effort to encourage their employees to aspire for a challenge through a variety of motivation system.

As Chairman Kwon Ohjoon started as his position last March, Mr. Kwon has expressed a direction to fulfill the vision of ‘POSCO the Great’ through the ‘Project-based Working Process’. The ‘Project-based Working Process’ identifies projects that will help improve profitability and accomplish qualitative goals, and focuses on producing outstanding results. The reason why the ‘Project-based Working Process’ is so efficient is that a specific purpose and outcome are defined clearly, leading the concentration rate of the project performers to increase. As the substantial rewards of the ‘Project-based Working Process’  reflect the employees’ performance, a positive work cycle will be created, leading to encourage more projects of higher profits.  

What is IP project?

Ever since POSCO has stated a ‘Project-based Working Process’, POSCO is operating ‘Innovation POSCO’ project, in which any employees with great ideas and capabilities can participate as project leaders or performers. With the aim of successfully carrying out the project, POSCO implemented the special executive system to enhance the expertise of project labor and further expanded the PCP (POSCO Certified Professional) system. There are about 500 IP projects in progress to improve profitability and to achieve qualitative goals.  

Starting the ‘IP project special reward system’ 

The ‘IP project special reward system’ was recently instituted so that employees would be encouraged to challenge themselves to take on new projects and concentrate on excellent performance. This system gives substantial rewards to those teams that produce results recognizable to anyone.

A distinct rewarding system

Projects are divided in to two groups – qualitative and quantitative- and compensation system is differentiated by each group. Quantitative projects which are to generate direct financial outcome, are rewarded by a certain percentage of its excess earnings, whereas qualitative projects are rewarded by the existing reward system.

Strict and precise performance evaluation

In order to maintain the fairness of the compensation, each project’s performance is evaluated with an accurate and thorough review. This evaluation proceeds in three stages, including financial performance, counterproductive possibility, and contribution.

Reward distribution according to individual contributions

As there is no limit per person, surprise rewards are plausible and the compensation is paid in a lump sum as soon as the performance is confirmed. The compensation payment is distributed by each person’s level of contribution. For example, the idea proposer’s allocation is 5% or less and the project performer receives about 45% of the reward.  

President Kwon Ohjoon, Directly Inspects the IP Project and Mentors Affiliated Employees

On September 12^th, President Kwon made visits to the head office in Pohang, POSCO R&D Center, and POSCO Research Institute to inspect POSCO’s ‘Innovation POSCO(IP) Project’ and to provide an opportunity to mentor project-affiliated employees. During his luncheon meeting with the IP Project’s key personnel, President Kwon sincerely encouraged the project leaders and paid special attention to their opinions on difficulties and limitations of the project.

President Kwon emphasized an importance of collective efforts in projects by stating, “collaboration of associated departments and their mutual contributions in making the project applicable to the site are the key elements in achieving profitable project”. Furthermore, he requested project key personnel to “put in the best efforts to maximize profit” as he believed in them and their professional experiences.

As shown in the IP Project, POSCO endeavors to inspire and challenge the employees. Its effort to challenge and manage projects in the most efficient manner possible will not stop here. In an upcoming October, POSCO plans to hold Project Ideas Competition to promote new ideas for new projects.

President Kwon, “We will work to earn the pride of the Korean people and to continue our contributions to the development of Korea’s economy”

President Ohjoon Kwon (former chief technical officer) was selected as the candidate to be POSCO’s new CEO.

POSCO held a board meeting on the 16th and unanimously carried a resolution to nominate President Ohjoon Kwon as the candidate for CEO, as inside director.

When POSCO CEO Joonyang Chung tendered his resignation on November 15th last year, POSCO held a special board meeting to establish a Succession Council to select the next CEO candidate, and has since been carrying out an in-depth search of candidates for the past 50 days. The Succession Council, comprising three outside directors including Chair Youngsun Lee as well as an inside director, carried out a transparent and fair procedure using multiple search firms to review a broad range of candidates covering both internal and external POSCO Group personnel . Five candidates were selected in the process, and all were suggested to the board of directors on the 15th.

To finalize candidates selected by the Succession Council, and examine their qualifications, POSCO’s board of directors resolved to form a CEO nomination committee made up of outside directors only, on the same day. For independent and strict candidate selection, the CEO nomination committee carried document screening of candidates for two days, on the 15th and 16th, and two interviews, including an in-depth interview. After examining the final qualifications for the eight capabilities POSCO requires of its CEO, including vision, outcome production competence, steel and related industry expertise and leadership, President Ohjoon Kwon was finally chosen as the CEO candidate.

“The entire steel industry, including POSCO, is facing an environment wherein margins are squeezed due to steel oversupply and intensification of oligopoly in the raw materials market,” said Youngsun Lee, POSCO board of directors Chair. “We need someone to reinforce the POSCO Group’s financial stability by promoting a strong reorganization of the group’s business structure, and to ultimately enhance the POSCO Group value in the long run.”

He added, “We selected President Kwon as CEO candidate because we consider him to be the right person to take the initiative in reengineering POSCO Group by enhancing original steel competitiveness through technology and marketing convergence, and fostering long-term company mega-growth opportunities through development of unique new growth technologies.”

Born in 1950, President Kwon graduated from Seoul National University, where he specialized in Metallurgical Engineering, and earned his master’s degree in the same department at the University of Windsor and a doctorate at the University of Pittsburgh. He joined the Research Institute of Industrial Science and Technology in 1986 and served as assistant director of the research institute, director of the research institute, and director of RIST, and is currently POSCO’s chief technical officer.

Kwon secured exclusive technological competitiveness by leading development of the company’s “World Best, World First” technologies as a technical steel expert serving as research institute and RIST director, while also playing a key role in securing and maintaining a competitive advantage in technology in the general materials field. Another advantage is his network of global steel companies and global competence through his experience serving as European office head.

Kwon will officially take office as CEO on March 14th, after the regular shareholders meeting and board meeting.

CEO Candidate Kwon’s Thoughts

I would like to thank the directors who have selected me as the candidate to be POSCO’s new CEO despite my flaws. If I am selected as the next CEO after the general meeting of shareholders, I will rally the strengths of all POSCO employees to lead our company to the world’s best competitiveness. I will ensure we do our best to solidify POSCO’s status as a company that makes people proud and contributes thoroughly to the development of the national economy.