BUSINESS

More than half of all wages based on seniority

By Yonhap
  • Published : May 10, 2018 - 15:38
  • Updated : May 10, 2018 - 15:38

More than half of all salaries in 170 major South Korean companies are based on employee seniority, a new poll showed Thursday.

The poll released by the Korea Economic Research Institute found that 51.2 percent of employees receive seniority-based salaries while 36.2 percent receive their salaries based on performance.

Under the decades-old seniority-based wage system, employee pay rises every year regardless of productivity. This kind of hierarchical pay system has been cited for placing a financial burden on companies.

(Yonhap)

The poll showed that all rank-and-file employees of those surveyed are subject to seniority-based salaries, but their wages are switched to a performance-based payment system when they are promoted to managerial posts.

The Korea Economic Research Institute, a think tank affiliated with the Federation of Korean Industries that speaks for South Korea's large businesses, said the switch is designed to boost the productivity of managers by rewarding them for their performance.

The institute said 119 out of 170 major South Korean firms maintain the hierarchical pay system, better known in South Korea as the "hobong" system. They complain that they feel a burden in maintaining long-term employees and that they have a problem in managing employee performance.

The 119 firms said they keep the hobong system on the basis that it is the established practice. Labor unions are against ending hobong.

South Korean companies have been pushing to adopt a performance-based payment system over seniority-based salaries, but no significant progress has been made due mainly to the protests of labor unions. (Yonhap)