The Supreme Court finally delivered its ruling that regular and fixed bonuses are to be included in the scope of ordinary wages, even when the cycle of payment is over one month. The scope of ordinary wages had been the key issue surrounding many con- flicts between management and labor, because it could not only make a lot of differences in overtime pay, but also could be the basis for severance payment calculations. No less than 160 lawsuits are pending with regards to the issue. This time, the court decidedly took the labor world’s side.
Although the standard has been made clear, the repercussions and afteref- fects have not yet been seen. Employers are on red alert, as they have to deal with skyrocketing wage payments. The financial circles are estimating that companies will have a burden of more than 13 trillion won (US$12.2 billion) in extra wages due to the ruling, but the actual amount may be far beyond that estimate. The problem is even graver for small and mid-size enterprises with less financial resources. It is said that approximately 10% of them will have to shut down their businesses. A lot of companies are planning on a cut in employment to avoid shutting down, which will only serve to exacerbate the already serious unemployment problem.
Another concern is a contraction in business activities. Even big businesses with sizable cash reserves will have to reduce their R&D expenditures and investments when their additional costs reach several trillion won. They might even find it more profitable to relocate their businesses abroad, as the case may be.
The most urgent actions needed are to minimize the impact. All of the interested parties need to gather their wisdom to drastically change the cur- rent wage payment system. In fact, it is the employers, at least in part, that brought the trouble to begin with. They reduced base pay to the minimum, while increasing the allowances for long hours of labor for less payment. This has resulted in employees doing the same work over a longer period of time, which caused, in turn, the employers cutting overtime allowances further. Korea’s labor productivity, which is just half of those of advanced economies, has much to do with the distorted wage structure. The base pay needs to be increased while the benefits are reduced so as to minimize overtime work.
The recent Supreme Court ruling can be a valuable opportunity for labor and management alike. If they meet halfway and achieve a compromise, they will be able to enjoy higher productivity and enhanced competitiveness. Labor disputes and high costs have been two of the major roadblocks to foreign investment attraction, and a few foreign companies are about to reduce their presence in the country due to these exact reasons. Measures are needed so that the ruling can lead to a better wage structure and productivity enhancement.