Corporate Objections
Five economic organizations in Korea had a joint press conference on Aug. 31, claiming that corporate labor cost burdens will become excessive if labor market reform based on a tripartite agreement continues to be delayed.
According to them, the domestic labor market is still inflexible, although retirement at 60 will become mandatory next year in public organizations and large corporations with 300 or more employees. “Measures for reducing personnel expenses that both employers and employees can be in favor of should be prepared without delay, with sensitive issues pending such as ordinary wages, shorter working hours, and retirement age extension,” said Korea University Law School professor Park Ji-soon.
At present, the average annual salary of long service employees in Korea is 3.1 times that of new employees, while the figure is 1.9 in Germany, 1.4 in France, 1.5 in Britain, and 2.4 in Japan. However, the productivity of Korean workers aged 55 and older is about 60 percent of those aged 34 and less.
“These gaps are because of the seniority system that has failed to pay more for workers with better outcomes,” Korea Employers Federation Vice Chairman Kim Yeong-bae pointed out at the press conference, adding, “Under the circumstances, Korean companies are predicted to bear 115.0902 trillion won [US$97.65863 billion] in additional personnel expenses until 2021, if the retirement age extension is brought in with the current wage system intact.”
Some companies have already overhauled their pay systems in order to deal with the possibility and seniority. For example, CJ discarded its pay step system for both blue and white collar workers, and the Samsung, LG, SK, and Lotte Groups adopted wage peaks as a preparation for a pay system reform. The management and the trade union of POSCO recently agreed on the adoption of a pay system centered on jobs and performances.
However, the Hyundai Motor Company is still seeing a conflict between the management and employees concerning the expansion of the wage peak, and many others have yet to start a wage peak system, not to mention the abolition of seniority. As of the end of last year, only 13.4 percent of Korean corporations with 300 or more employees had adopted a wage peak system, and the ratio dropped to 9.4 percent when every Korean firm was taken into account. In April 2013, the Act on Prohibition of Age Discrimination in Employment and Aged Employment Promotion passed the National Assembly for mandatory retirement at 60, but a wage peak system is not compulsory according to the bill.
At the press interview, the organizations also claimed that criteria for the dismissal of low-performing employees should be further specified. “Article 23 of the current Labor Standards Act, which stipulates that an employee cannot be dismissed without due cause in the event of a general dismissal not constituting redundancy, is too vague and makes it impossible for employers to dismiss permanent employees with poor performance,” a representative said.