Wage Peak System
An increasing number of big businesses in Korea are adopting wage peak systems, with a retirement age extension scheduled to start going into effect in 2016. Those working for companies with 300 or more employees or public institutions will be subjected to a retirement age of 60 from next year. Currently the retirement age is 55.
Wake peaks are not compulsory, and different business groups are adopting different systems. Some of them will apply a wage peak to the annual salary they pay, while others will limit it to base pay.
In the meantime, controversy still remains as to the effectiveness of the new system surrounding the issue of how much to cut salaries. In some cases, voluntary retirement is more advantageous for employees, because voluntary retirees are to be given a lump sum equivalent to dozens of months of salary.
Most of the business groups subject to a 10 percent cut per year are scheduled to implement a wage peak from next year. One of them is the Samsung Group, which introduced a wage peak in its subsidiaries. Most of its subsidiaries will start to cut wages in 2016 by reducing them 10 percent compared to the previous year, and then doing so again each year for five years total. In other words, a 56-year-old Samsung Group employee will earn only 90 percent of what he did at 55, 81 percent at age 57, 72.9 percent at age 58, and so on. The same calculation method has been adopted by SK Telecom, LG Chem, and KT.