KAMCO Case

 

Although the wage peak system gained momentum following the Park Geun-hye administration’s push for a reform of the labor market in Korea, it turns out that a successful implementation requires delicate handling of management and labor relations, as well as government supervision over new hires.

Given the record-high youth unemployment rate – at 11.1 percent last Feb., the administration has announced government commitment to restructuring the labor market, the key of which is to introduce the wage peak system. Especially with regard to the public sector, President Park announced that in the next two years, public offices will create 8,000 jobs for youth via the wage peak system.

According to the Ministry of Strategy and Finance, all 316 state-run companies and institutions nationwide will adopt the wage peak system, in which the salaries of high-paid executives or managers will begin to decline at a determined rate from a certain age. The policy rationale is that the saved wage money will be used to hire young people as entry-level workers.

However, after facing fierce political opposition from unions in the private sector, the Korean government intended for the public sector to take lead in what is known as a part of wider labor reforms aimed at reversing the sluggish economy and cutting deficits. It hoped the private sector would follow suit.

However, such expectations prove to be ill-positioned. Lee Ki-kweon, minister of employment and labor, especially noted the difficulty of cutting salaries for workers in the top 10 percent both in the private and public sectors. “While some companies have imposed layoffs due to sluggish profits, high-paid executives and employees were paid hundreds of millions of won when they retired,” Lee said. “[That made it] really difficult to persuade the labor unions to cut wages for workers in the top 10 percent.”

Given that changes are expected to be met with strong opposition from labor, many public organizations, including the Korea Asset Management Corporation (KAMCO), set up a task force in an effort to narrow the differences. On average, although parties agreed to the necessity of the wage peak system, they differed over when to start trimming salaries. Labor unions generally demanded the cut to be enforced after the legally-guaranteed retirement age of 60, while management called for it to be started before then.

Through negotiations in a special task force, KAMCO hammered out the decision to adopt the wage peak system beginning on Aug. 31 this year.

Unlike many government-run companies that hire just a few new recruits under the pressure of reducing deficits and downsizing operations, KAMCO hired 55 interns, the same number as last year. Ninety percent of these interns will be converted into full-time staff. The spokesperson said that KAMCO plans to hire an additional 20 new interns next year.

He also mentioned that the government conducted a parliamentary inspection on state-run companies for new hires, and KAMCO and the Korea Credit Guaranteed Fund were subject to that inspection, which proved to be an effective impetus for new hires.

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