New base salaries to be tough for manufacturers

Will the Supreme Court’s ruling recalibrating workers’ base salaries push foreign manufacturers out of Korea?

Concerns are rising that the ruling will change Korea’s labor landscape and make the local market less attractive for foreign manufacturers like GM Korea.

The Supreme Court ruled Wednesday that regular bonuses should be included in base salaries, excluding vacation and other welfare allowances, in a suit filed by 295 employees of an auto-parts maker against their company three years ago.

The ruling is expected to affect around 180 lawsuits in progress at courts nationwide, although the results of each suit could differ depending on agreements between the labor and management of each company.

But Wednesday’s ruling is expected to provide a precedent for future compensation agreements.

GM Korea is one foreign business already undergoing major changes in Korea. There have been rumors that the American automaker is considering withdrawing due to increasing labor costs.

GM’s Chairman and CEO Daniel Akerson even broached the subject with President Park Geun-hye in a meeting in Washington in May.

There are rumors that the company is stopping production in Australia for the same reason - higher labor costs - although Akerson publicly blamed a combination of factors, which he called “the perfect storm of negative influences.”

The U.S.-based automaker is likely to face roughly 1 trillion won ($944.1 million) in additional costs if a court makes it pay the new base salary computation to its workers for the past three years, according to a company spokesperson.

If GM Korea isn’t forced to make retroactive payments, it will have to start paying about 173.4 billion won from next year in extra labor costs.

Since last year, GM Korea has been bracing for the court’s ruling, setting aside 800 billion won as additional allowances in its accounts. That pushed the company into the red, and it posted about 34 billion won in operating losses last year.

GM Korea is involved in 10 lawsuits related to the base salary issue.

“There is no exact estimation for additional costs to be incurred at GM Korea,” said Kim Sang-won, a spokesman at the company. “We have to wait until the courts make rulings on the ongoing suits. But it is true the Supreme Court’s ruling is burdensome.”

Kim denied that GM is considering withdrawing from Korea.

According to the company, total wages paid to about 17,000 employees were 1.19 trillion won last year. The average annual salary of GM Korea employees is 69 million won. Of the total, about 20 million won was given out as bonuses.

Applying the court’s ruling to GM Korea’s case, the average base salary of its workers is estimated to reach 55 million won. The increased base salary will push retirement, holiday and overtime allowances upward, too.

Other foreign businesses that have mostly white-collar workers say they are not going to be affected by the ruling.

Foreign businesses like GE Korea and Merck Korea have already incorporated regular bonuses into base salaries, according to the companies.

“We included bonuses in base salaries in 2006 in order to make the wage calculation system simpler and more transparent,” said an employee at Merck Korea’s human resources department.

On average, base salaries are forecast to increase 20 percent to 30 percent.

BY SONG SU-HYUN, JOO KYUNG-DON [ssh@joongang.co.kr]