Wage Peak System
The wage peak system in Korea is not legally enforced, and there is a variety to the forms that the system takes in different companies. For instance, the age at which the salaries of employees start to be subjected to the wage peak differ from one company to another. Altogether 37.5 percent of the companies surveyed will start to apply the wage peak system to people aged 56, followed by 29.2 percent of companies to people aged 58, 16.7 percent to people aged 57, and 12.5 percent to people aged 59. Some of them will apply a wage peak to the annual salary, while others will limit it to base pay. A majority of companies including POSCO, KT, LG Chem, and SK apply a 10 percent wage cut to employees aged 56, 19 percent cut to 57, 27 percent cut to 58, 34 percent cut to 59, and 40 percent cut to 60.
This year, the new wage structure of POSCO, the world’s fourth-largest and Korea’s largest steel exporter, added new features to the existing wage peak system in addition to the 10 percent annual cut that the company started to adopt since 2011.
POSCO has been struggling with mounting labor costs, while they are still faced with intensified foreign competition in the export market. As a way of alleviating costs, the company has been downsizing operations across the board. Moreover, this year, it decided to freeze the salaries of its workers. The company will also overhaul the traditional wage system based on seniority to switch to a performance-based system.
While committing to cutting costs, POSCO has sought ways to participate in alleviating the social woes of a deepening divide between small merchants and big businesses. For instance, POSCO used the saved wages to purchase gift certificates to help boost the profits of small merchants at traditional markets.
“We expect to save about 13 billion won [US$11.5 million] from the wage freeze. We will use the money to purchase traditional market gift certificates, worth 13 billion won, and give them to our employees and those of our business partners,” a company spokesperson said.
Moreover, alleviating deepening youth unemployment, the steel maker plans to recruit 6,400 entry-level workers this year, and employ 300 interns from university students every year for the next five years.
“Although we have been disposing of some of our affiliates and downsizing operations, we decided to hire as many university graduates as we can,” said the spokesperson.
In the process of further improving the wage structure, the Korean steel maker set up a task force to draw up a workable scheme, and invited labor, management, and labor experts to build a consensus between labor and management based on such concepts as corporate responsibility.” The spokesperson stressed that both labor and management decided not to raise wages this year as part of efforts to overcome the ongoing difficulties, and share growth with business partners and local communities.”