Heads of major financial holding companies in South Korea will face a sharp wage cut starting this year as regulators enforce a performance-based pay system for the top executives, industry sources said Wednesday, a step partly answering to escalating criticism over their moral hazard.

The top four financial holding companies -- KB Financial Group Inc., Shinhan Financial Group Co., Woori Finance Holdings Co. and Hana Financial Group Inc. -- have decided to cut the basic salary of their chairmen by 30 percent this year, reducing the average annual salary to 1.44 billion won ($1.35 million) from 2.05 billion won last year, according to the sources.

The actual payment will also be adjusted according to the net profits of their financial firms at the end of the year, they said.

The move came after the Financial Services Commission and the Financial Supervisory Service, the country's financial authorities, demanded that the banking industry overhaul the pay system to make the wages conditional on business performances.

Critics have long argued that the chairmen are given a sanctuary, unhurt even when the group suffers poor results and rewarded excessively when earnings are good. In 2012, profits of local banks fell by an average of 22 percent, but the chairmen's salaries were cut by only an average 4.6 percent.

Public outcry against such practice deepened after revelations in January that banks and some of their credit card affiliates had mismanaged data of millions of clients, leading to massive leaks that recently were found to be circulating among third parties.

Analysts say South Korean banks are likely to be challenged in their earnings again this year, as business prospects are still discouraging amid nascent but slow recovery of the world economy.

Shinhan Financial Group Chairman Han Dong-woo, for example, received 2.75 billion won in basic salary last year but is expected to be paid 1.73 billion won this year. Last year, Han's salary cap with additional bonuses was 3.62 billion won, while the limit was set at 2.25 billion won this year, falling 40.6 percent on-year.

If the company drops 50 percent in net profit this year, Han's annual earnings will be slashed by 70 percent to 920 million won.

Lim Young-rok, the chairman of KB Financial Group, will be paid 1.48 billion won this year, a 35.9 percent decrease from 2.31 billion won last year. His maximum salary will also fall 34.2 percent on-year to 2.1 billion won from 3.19 billion won.

"Chairmen of financial holding companies have earned a huge fortune without doing anything good, but times have changed," a regulator official said, asking not to be named. "Their salaries can be slashed if they don't work hard and bear no fruit."

"Salaries of the financial chairmen were too high," Cho Yeon-haeng, the chief of the Korea Finance Consumer Federation, said. "Their high salary is another burden to consumers. It is still enough even when their payment is cut in half." (Yonhap)