Revamping the wage systems

Hyundai Motor won a lower court lawsuit against its employees after the Supreme Court reinterpreted the scope of base salary. The Seoul Central District Court ruled that the allowances cited in the cases filed by separate unionized workers who demanded damages cannot be regarded as part of the base salary. The court said that bonus payments do not comply with regular working day conditions and cannot be deemed a fixed compensation for base salary. If confirmed in the higher court, Hyundai Motor could save 3.2 trillion won ($2.9 billion) in labor expenses.

But the fight is by no means over. Other manufacturers like Kia Motors, Hyundai Heavy Industries, Hanjin Heavy Industries and Kumho Tire face similar court battles with their former and incumbent employees. Their rulings could be different as their bonuses fit into the term of “regularity.”

A battle between labor and management was sparked after the Supreme Court in December 2013 concluded that bonuses and other compensations regularly paid by employers should be counted a part of the base salary, leading to a spike in severance and retirement payments. The strife over base salary should be resolved by restructuring the salary system. After the ruling, Hyundai Motor said it will revise its pay system to be based more on work performance rather than years of employment. The shift in the salary system from seniority to performance in the country’s largest workplace could have repercussions on the entire corporate sector. Japan Inc., famous for respecting and rewarding employees based on seniority and loyalty to the company, now rewards for productivity and performance.

If employees are paid entirely on their proximity to retirement instead of their contribution, the company cannot be competitive in a global context. The system also discriminates against young people because a company gives less to new recruits due to the cost of sustaining current workers.

A government, labor and management committee have agreed to come up with an outline to reform the labor market by March. But it is unclear if it can arrive at a consensus. Both labor and management oppose a government proposal to help the irregular work force. The Korea Confederation of Trade Unions, the militant umbrella union group, has warned it will go on a collective strike if any unwanted changes are made in the labor market. Management is also intent on keeping the current policy on pay and irregular workers intact.

The government must do its best to draw up an agreement by March. If not, it must seek legislative cooperation to pass a labor reform bill. The scope of base salary must be clarified in a clear legal description to prevent further wasteful court battles. Both labor and management must work to lessen rigidity in the pay and employment system and narrow the wage gap between permanent and nonpermanent workers. JoongAng Ilbo, Jan. 19, Page 30