Peak-wage debate becomes generational conflict in finance
"There are petitions asking workers on the peak-wage system to be transferred to another department," the union representative said. "The peak wage system is now becoming a conflict between generations."
Under the peak-wage system, salaries of older workers are lowered in exchange for a delaying of their retirement.
The system is leading to workplace disputes, especially in finance and especially in financial companies that are state owned.
Unlike private commercial banks, where many of the employees that sign up for voluntary retirement are given hefty severance checks on their way out, most of the senior employees at state-owned financial companies are encouraged to join the peak-wage system.
At state-owned banks, if an employee chooses voluntary retirement, they would only receive 22.5 percent of what they would get when working for additional years under the peak-wage system.
As of end of last year, 8.9 percent of employees at Korea Development Bank were on the peak wage system, at the Industrial Bank of Korea 7.1 percent and at the Export-Import Bank of Korea 3.3 percent.
While more senior employees are being placed on the peak-wage system, they are given more support function roles, which is fueling the generational conflict.
The workers argue that the peak-wage system is also blocking the hiring of new employees, which adds to the workload of younger staff.
"The people that are placed on the peak-wage system complain that they are treated as senior citizens and left out to die in the wild, while the younger people complain that the senior employees are only taking up space without actually working," said a union representative of a state-owned bank.
The government encouraged companies, particularly state-owned enterprises, to adopt the wage limit system to employ older people, reduce the cost of keeping older Koreans on the payroll and make room for the recruitment of younger applicants.
In 2003, the Korea Credit Guarantee Fund, which is state owned, was the first among the public institutions to adopt the system.
To further encourage the implementation of the wage system, the government in 2013 raised the legal retirement age from 55 to 60. The change went into effect in 2016.
The conflict is not limited to tensions between younger and senior employees, who are accused of not working as much.
Even the senior employees are taking action against the wage restriction program by filing lawsuits, arguing that their paychecks have been cut while their workload remains the same.
KB Kookmin Bank's labor union is the latest to take such action.
On Thursday, the union demanded that the company end its peak-wage system and warned that it would file a lawsuit against the bank so that the employees under the wage system could receive the amount that they are owed.
In May, the Supreme Court upheld a lower court ruling that the Korea Electronics Technology Institute must pay a 67-year old plaintiff salary lost as a result of the peak-wage system.
The court stated that the peak-wage system that reduces the wage of an employee just because of reaching a certain age and without rational reasons is invalid.
The court noted that for the peak-wage system to work, the institution had to reduce the level of work in accordance with the paycheck cut.
"We're taking legal action with employees that have evidence their paycheck has been cut in half despite the workload being the same," said Ryu Je-gang, head of KB Kookmin Bank's labor union.
So far, 40 are planning to join the lawsuit.
The KB Kookmin Bank labor union said it will prepare for additional lawsuits with additional employees that have been victims of the system.
Woori Bank's labor union said it is also taking similar steps, especially for the bank's call center employees. The bank said it is currently collecting information on the employees whose salaries have been cut.
"Once summer vacation is over, we plan to fully immerse ourselves in our research," said a Woori Bank labor union official. "We'll first try to negotiate with management. But if that fails, we will start taking legal action."
At brokerage firms, similar noises are being made.
"Recently one securities company collected roughly 60 cases and six others are preparing," said Kim Ki-jong, an official at the Korea Finance & Workers' Union.
At Korea Development Bank, 169 senior employees filed a lawsuit in 2019, demanding that the bank pay them the 600 million won of wages that have been cut because of the program.
Last year, they lost but appealed and are awaiting another ruling.
At the Industrial Bank of Korea, 470 former employees last year filed a lawsuit demanding 24 billion won owed. They are still waiting for the first ruling.
The issue is particularly debated in the financial industry because it was an early adopter of the system and because a high ratio of employees are on it.
According to the Ministry of Employment and Labor, 67.2 percent of financial institutions have adopted the wage system.
Among the 1.64 million businesses is Korea, 347,000 have a retirement age and 22 percent have adopted the peak-wage system.
The bigger the company the more likely it adopts the system, as 52 percent of companies with 300 or more employees were using peak-wage system.
"The banks, which previously paid their employees according to the years of employment, tried to prevent labor costs from rising and the average wage of employees with the peak-wage system, which is a stopgap," said Park Ji-soon, a Korea University Graduate School of Labor Studies' professor. "It's time to start considering a reform of the wage system such as either changing the peak-wage system or outplacement."
Employment and Labor Minister Lee Jung-sik said the government will prepare a wage system change that will be rational and benefit not only the aging employees but also the young.
"The labor market should be dealt according to the changing trends, including the aging population and the spread of a wide variety of job forms," Lee said.
The Yoon Suk-yeol government has promised a change in the wage system so that the paychecks will be determined based on performance and the work rather than the years of services.
It has argued that the current pay system, in which the size of the paycheck is determined on the number of years served, has limited the labor market's flexibility.
The Korean Financial Industry Union is preparing for a strike next month, the first in six years. It is opposing the peak-wage system and the closing of branches and is pushing for a shorter workweek.
The financial labor union is planning to hold a vote on whether to go through with the strike on Aug. 19.
"We think it won't be difficult to get the agreement of our union members," said a union official.
BY KIM YEON-JOO, LEE HO-JEONG [firstname.lastname@example.org]