Ssangyong Motor proposed to its labor union to include bonuses as ordinary wages on July 23. Since GM Korea suggested similar to its labor union on July 18, ordinary wage expansion plans are widespread in the overall automobile industry in Korea.
According to Ssangyong Motor’s announcement at the 15th wage and labor collective negotiations held on July 22, regular bonuses, currently 800 percent, shall be included in the legal definition of ordinary wages. Whether additional compensation including employee welfare expenses shall be included as well is to be decided after the court’s decision. As ordinary wages are the criteria to calculate overtime, nighttime, and holiday allowances, these additional allowances will rise with the increase of ordinary wages. This leads to big raises in salary, which is therefore very positive for employees. However, this is a very big burden to the company at the same time. An official at Ssangyong Motor explained, “As the Supreme Court unanimously decided to include the bonus in ordinary wages, the company has already prepared separate allowances in case of potential lawsuits. We wanted to conclude the negotiations with the labor union soonest and stabilize the management.”
In fact, sales of Ssangyong Motor during the first half this year increased 10.4 percent to 73,941 vehicles relative to last year. Domestic sales increased 13.5 percent to 33,235 vehicles, and exports 8.0 percent to 40.706 vehicles. Industry experts analyze that Ssangyong Motor could not risk losing their hard-won “plus performances” due to the conflicts with the labor union.
Ssangyong Motor's labor union welcomed the management’s proposal, but disagreed on when to start applying it. While the company proposed to start including the 800 percent bonus in ordinary wages upon settlement of negotiations, the labor union insists to retroactively apply it, backdated to the Supreme Court’s decision. The labor union is also requesting to improve the labor conditions of reinstated union members as well as to withdraw damage indemnification and provisional attachments.
As the expansion of the definition of the ordinary wage has been realized in Ssangyong Motor, the automobile industry is now focusing on Hyundai-Kia Motors. The labor union of Hyundai Motors also aims to strongly push for ordinary wage expansion. An official at Hyundai-Kia Motors explained, “The bonus system of Hyundai Motors is totally different from that of Ssanyong Motor or GM Korea, in both characteristics and means. We pay regular bonuses once every two months, but we do not when working days fall below 15 during this period. This cannot be considered as regular.”
According to the industry estimation, if ordinary wages are recalculated backdated to past three years, 5 trillion won (US$4.8 billion) of additional labor cost arises during the first year for Hyundai Motors. For an entire Hyundai Motors Group this will amount to 13.2 trillion won (US$12.8 billion). For GM Korea, having already proposed its labor union to expand ordinary wages, the total labor costs will increase by 18 percent if various allowances such as regular bonuses and vacation bonuses are included in ordinary wages.
As two of the automobile manufacturers have finally agreed to expand ordinary wages, the competitive advantage of Korea as an automobile manufacturing base could be weakened. Except for Hyundai-Kia Motors, the remaining automobile manufacturing companies are not free from the pressures of foreign headquarters. If labor costs rise constantly in Korea, those companies could exit from Korea in the worst-case scenario. An automobile industry professional expressed regrets by saying, “For the past few years, automobile makers have had very hard times. Their performances became so much better this year in both domestic sales and exports. Ironically, this exposed their weaknesses while negotiating with labor unions.”