New way with wages

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New way with wages

The Ministry of Employment and Labor proposed a new set of guidelines to simplify and rationalize compensation as a follow-up to requiring companies to count regular bonuses as base salary.

Under the new guideline, companies are asked to put less consideration on seniority and more on performances of individual workers in calculating wages.

The government aims to encourage companies to pay employees according to their workload and performance rather than their seniority and status, as in advanced societies.

Korea has an outdated salary system from the days when jobs were guaranteed for life. With the legal retirement age pushed up to the age of 60, if companies continue to pay employees according to their seniority, they won’t be able to afford to hire young people.

Companies inevitably would try to avoid new hiring if they have to keep employees until their retirement age in order to reduce costs. They also have to accommodate a Supreme Court ruling that ruled in favor of workers and demanded companies calculate regular bonuses and allowances in base salaries.

Without fundamental changes in the salary system, labor costs will rise sharply when bonuses are paid out according to seniority. Korean Inc. could lose competitiveness due to a much greater burden in labor costs.

During the years of rapid industrialization, jobs-for-life and corporate loyalty helped to whip up the economy’s galloping pace. Korea imported Japan’s corporate culture, which emphasized hierarchal rewards with pay increases that depended on seniority.

But the economy no longer runs at such a rapid speed and nor does it generate jobs as easily as before. Japanese companies abandoned their hierarchical pay system long ago. Flexibility in sustaining employees is a must in a thinning working population. A major restructuring of wages is therefore inevitable.

Labor is naturally resistant to some changes. The country’s major trade unions issued statements opposing the move, saying the government was merely thinking of corporate interests.

Voices of resentment and complaints are to be expected from salary-earners who struggle in an increasingly competitive corporate culture amid an economic slowdown and rising living costs.

The government should therefore demand equal sharing of pain from management before the salary system is revised to better persuade employees to go along. Restructuring the wage system cannot be avoided. A tripartite committee of the government, labor and management should start discussions.

JoongAng Ilbo, March 21, Page 34

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