"Why Do Executives Receive More Bonuses?"... Wage Conflicts and Generational Divides [Wage 4.0 Era]

[Wage 4.0 Era]① Wage Conflicts Started with Differential Performance Bonuses Ignite into Generational Conflicts
"Executives Monopolize Jointly Created Performance"...Millennial Generation's Rebellion

[Asia Economy Reporters Nahum Kang, Seungjin Lee] The global wealth gap that has occurred over the past 100 years has led to political polarization. Since the COVID-19 pandemic, polarization and intergenerational conflicts have deepened, resulting in serious political and social conflicts in various countries. South Korea is experiencing the same path. Gender conflicts have intensified amid confrontation and discord, and within companies, conflicts between executives and employees have erupted over wages and bonuses.

South Korea's wage system has not significantly deviated from Confucian practices until now. After liberation and before the democratization movement, the seniority-based wage system was first introduced, marking the beginning of the Wage 1.0 era. Subsequently, with the democratization movement and the rapid rise of workers' rights, the Wage 2.0 era, based on the seniority system, fully opened. Following the Asian financial crisis, South Korea, riding the wave of globalization, eagerly adopted the annual salary system. This is the Wage 3.0 era that continues to this day. Although it claims to be an annual salary system, a closer look reveals it is still close to the seniority system. While there are differences depending on performance evaluations, most wages fluctuate around the average wage increase rate.

The uniquely authoritative culture that advocates for the order of elders and juniors (Jangyuyuseo, 長幼有序) remains intact. However, with the full-scale social entry of the millennial generation, who value the concept of 'fairness' most, combined with the rapid growth of companies in the post-COVID era, fundamental questions about the current performance and compensation system have been raised. Although companies are competing to operate bonus systems based on excess profits, most bonuses go to a small number of executives. This is because seniority, where longer tenure means higher wages, still occupies the top tier of our wage system. From the millennial generation's perspective, individual performances vary, but companies that do not consider this are frustrating, and the older generation, who have barely secured executive positions, are displeased with juniors who treat them as 'vestiges of corruption.'

Wage 3.0, represented by the seniority-based, annual salary system that is now escalating into generational conflict, has fulfilled its role. For several years, major advanced countries have eliminated seniority from their wage systems and have measured individual performance to reflect it in wages. South Korea must also close the curtain on the Wage 3.0 era, which has seen no change for decades, and prepare for the Wage 4.0 era.

Wage Conflicts Triggered by Webzen Spread Across the Industry

According to the game industry on the 30th, Webzen's labor and management recently reached a tentative agreement on wage negotiations after four rounds of intensive talks. This came just two weeks after the Democratic Party's Euljiro Committee mediated the concentrated negotiations.

The conflict between Webzen's labor and management stemmed from a large gap between the company's proposed wage increase and the union's (National Chemical, Textile, and Food Industry Workers' Union Webzen Branch) desired wage. While the company proposed an average 10% increase, the union demanded a uniform 10 million KRW increase in employee salaries and disclosure of the total performance bonuses for team leaders and below.

The reason the Webzen union demanded a uniform increase in regular employees' salaries was that the average wage increase was concentrated in the performance bonuses of senior executives. A Webzen union official said, "Last year, the wage increase plan was announced, but senior executives received raises of over 20 million KRW, while most employees only got increases in the hundreds of thousands. The company claims this is the industry's highest increase, citing an average raise of over 20 million KRW."

Especially regarding bonuses beyond the annual salary, regular employees' dissatisfaction is greater. Since bonuses are calculated proportionally to the annual salary, most bonuses go to a few executives, and the bonuses employees receive are insignificant. On the other hand, the company insists that it is natural for executives with greater responsibilities to receive higher bonuses.

High Executive Salaries Under Scrutiny

The backlash is directed at executives receiving high salaries. Last year, the average salary of Kakao employees was 172 million KRW. Excluding gains from stock options, it was about 89 million KRW. Meanwhile, the remuneration of three registered directors reached approximately 2.779 billion KRW per person. At Naver, the average salary of 119 non-registered executives last year was 406 million KRW, which is three times the average employee salary of 129.15 million KRW.

A portal industry insider said, "It is natural that executives earn more than regular employees, but it is hard to accept that the difference is more than tenfold. The performance of highly paid executives is also created together with the employees they work with, so it is clearly problematic that they monopolize the bonuses."

It is also problematic that companies do not closely analyze individual performance and reflect it in wages. Roh Young-ho, chairman of the Webzen union, said, "Although we compete based on ability and performance under the guise of an annual salary system, the reality is that we cannot know our own performance, and I wanted to change this."

Currently, the Webzen union is forming alliances with unions from Naver, Kakao, Nexon, Smilegate, and other industry players. There are signs that a wage conflict between labor and management at one game company is expanding across the industry.

Wage Disputes Turning into Generational Conflicts

Wage controversies are spreading into new generational conflicts. Although the annual salary system was introduced after the Asian financial crisis, the reality is that it operates like a seniority system with fixed annual increase rates. The older generation sees this as 'natural,' while the millennial generation views it as 'unfair.' As millennials take on key practical roles in companies, the question "Why do executives monopolize the performance bonuses when we do the work?" has become a generational conflict within companies.

A Mr. A (manager) working at a domestic IT company said, "Our company also adopts an annual salary system, but it is practically a one-sided notification from the company, so it is no different from a seniority system. There is a lack of reasonable standards for performance evaluations that justify salary increases, and the wage system based on seniority makes it impossible to surpass bosses who hardly work."

Another IT company developer, Mr. B, said, "Although it is an annual salary system, the increase rates based on years of service and rank are clearly defined, and the performance evaluation method is not reasonable. Even if I rate my own performance highly, the leader's evaluation influences it, and I do not receive appropriate treatment."

In response to such provocations from young developers, senior generations such as team leaders and executives say, "It was natural in the past and remains so now." A senior executive at an IT company said, "Unlike before, executives often lead projects directly and act as team leaders. They have to do the work and bear responsibilities according to their rank, so it is natural for them to receive higher wages and bonuses."

To Receive What You Want, You Have to Leave the Company

The generational conflict over wages is a cause of the high turnover rate in the IT industry. According to a survey conducted by the job portal JobKorea in the second half of last year targeting 485 male and female office workers, 45.8% answered that they are actively preparing to change jobs within the second half of the year. When asked the decisive reason for deciding to change jobs, 43.7% cited 'dissatisfaction with salary,' followed by 'too high work intensity' (21.2%) and 'lack of promotion opportunities' (12.6%).

As of last year, the average tenure at major IT companies was 5.7 years at Naver and only 4.9 years at Kakao. In the game industry, except for some major companies like NCSoft, all recorded less than five years of tenure. This reflects the millennial generation's perception of "I don't know how long I will stay at this company, so I should be paid according to my work" and the generational gap with the older generation who deny this.

Mr. C, who is in charge of server development in the IT department of a financial institution, has changed jobs four times since 2015. He explained that all four job changes were due to desires for higher salaries and dissatisfaction with coercive organizational culture. Mr. C said, "No matter how high my performance was at previous jobs, I was convinced that I could never exceed the absolute salary level. Ultimately, I chose to increase my salary through job changes."

(Illustration by Seongsu Oh gujasik@asiae.co.kr, Infographic by Jinkyung Lee leejeen@asiae.co.kr)