SK Innovation adopts CPI-based wage increase

SK Innovation management and the company’s labor union have come to an agreement to increase employee wages in line with the local inflation rate.

The company said over the weekend that the union and the management reached a conclusion last week that, starting this year, they will use the consumer price index announced by the Bank of Korea from the previous year as the reference point to decide the rate of salary increase.

For instance, the consumer price index rose by one percent in 2016, according to the central bank and Statistics Korea. Based on the agreement, the rate of wage increase for SK Innovation’s 4,000 employees will therefore go up by one percent this year.

But while the rate of increase will reflect the inflation rate, bonuses and other payments will be determined based on the company performance each year.

SK Innovation is the first company to adopt such a system in Korea. Similar systems are reportedly used by public companies in European countries such as the Netherlands and Belgium.

“We were able to resolve possible discord or side effects [from customary forms of wage negotiation] by adopting a negotiation framework based on mutual trust,” said a company spokesperson. The decision is expected to slash the time and effort necessary for traditional negotiations, which take place each year.

SK Innovation struggled through a wage negotiation that lasted more than five months last year. The union demanded the company increase wages by 1.7 percent, given the freeze from 2014 to 2015. The management rejected the request, offering a rise of 0.7 percent, the same as the rise in the consumer price index from 2015.

The negotiation started in July and could not be settled until the National Labor Relations Commission was brought in to mediate the case in December. The rate of salary increase determined by the commission was 1.5 percent.

The swift agreement by the labor union and SK Innovation management comes amid continuous disputes between companies and their unions in Korea over wage issues.

Currently, companies such as Hyundai Motor and Kia Motors are involved in wage disputes, some leading to serious lawsuits that could cost a tremendous amount of financial losses in certain cases.

The union of Hyundai Motor, which falls under the hard-line umbrella union Korean Metal Workers’ Union, staged a strike for its fifth consecutive year this year after it failed to reach an agreement on salary increases.

BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]