Automaker wants new pay model

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Automaker wants new pay model


With labor market reform in limbo, Hyundai Motor has proposed changing its seniority-based wage system to one based on performance.

The nation’s largest automaker said it hoped the changes would benefit both parties, but the proposal got a cool reception from the company’s labor union.

The automaker’s labor union is known in Korea for hardcore stances and aggressive negotiations.

The automaker is Korea’s largest workplace with 51,600 employees.

The company’s wage system improvement committee met for the fifth time Thursday at its Ulsan factory and delivered its wage system proposal to the union.

Yoon Gap-han, Hyundai Motor president and head of the Ulsan factory, and Lee Kyung-hoon, leader of the union, attended the meeting.


The proposal was about simplifying the current payment system from 120 types of payments to 15; changing wage levels in accordance with performance; and establishing new standards for performance bonus distribution depending on a job’s degree of difficulty, work attitude and productivity.

At Hyundai, wages are based on seniority and bonuses are tied to the number of hours worked. All workers who started at Hyundai in the same year receive the same annual salary.

In the proposal unveiled Thursday, Hyundai benchmarked the wage systems of German and Japanese automakers.

In particular, a task-based wage system that is used by BMW, Volkswagen and Audi is included in Hyundai’s proposal. This policy ranks production line workers based on the importance and difficulty of tasks associated with their jobs, as well as work environment and required level of training.


Hyundai considers neither job difficulty nor employee skills when it sets wage levels.

The principle of Hyundai’s proposal to maintain current salaries and stay neutral when negotiating wages so neither party is disadvantaged was inspired by the Hartz reforms, a labor market overhaul advocated by former German Chancellor Gerhard Schroder’s adviser Peter Hartz.

The country’s New Wage Structure Agreement, called ERA (Entgeltrahmenabkommen in German), was finalized in 2003 to cap annual raises at 2.7 percent and preserve the subsistence wage.

“Under this rule, employers don’t have to spend extra after reforming the wage system, and employees still get the same subsistence wage. This doesn’t disadvantage either party,” said Yoon Yeo-chul, vice chairman of Hyundai Motor in charge of labor. “In order to overcome exhaustive arguments at the negotiation table, there should be such a principle that pledges not to disadvantage either party.”

Hyundai also benchmarked Toyota’s performance-based annual salary system. Toyota had a seniority-based payroll system until the 1990s. Then in 2000, the Japanese automaker changed to a job-task based system, which consists of a base salary and performance-based payments.


Later in 2004, the company abolished age-based wages and replaced it with a system based on skills and annual improvements in productivity.

“Toyota gained competitiveness after settling on its performance-based salary system customized to each worker’s skills and performance,” said Kim Dong-won, business administration professor at Korea University. “Such a salary system fueled workers’ motivation to actually work harder.”

Industry insiders say Hyundai’s performance-based wage proposal could be a guideline for other companies on how to change their wage systems after the conclusion of trilateral labor market overhaul negotiations.


However, the company’s labor union opposed the automaker’s proposal almost immediately Thursday, saying it wants to keep the seniority-based pay system.

“Management’s proposal is not even worth considering, because it lacks management’s plan for how to implement the peak wage system,” said Hwang Ki-tae, public relations officer at Hyundai Motor’s labor union, indicating the union wants management to first expand the overall of peak wages.

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