[Job Performance Pay Solution] ② 'Hobongje' Changing Japan... Why Can't Korea Change It?

Introduction of Job Performance Pay Leads to Significant Wage Cuts for Many
Union Opposition and Distrust in Job Evaluation Create Obstacles
Conflicts Among Employees Over Timing of New Wage System Implementation
Experts Say "Complete Job-Based Pay Impossible... Need to Find Consensus"

The reform of the wage system centered on job roles and performance has a long history of failure in South Korea. Even the Moon Jae-in administration, which was born out of the 'candlelight protests' and was favorable to labor, attempted to introduce a job-based pay system to replace the seniority-based wage system but failed to make any progress. Although there was a general consensus that a seniority-based wage system is not suitable in an era of low growth and aging population, the opposition from labor unions ultimately could not be overcome. A labor-management relations expert said, "Unlike other labor reform tasks, meaningful discussions on wage system reform require a certain degree of labor and employment flexibility," adding, "It is a very difficult issue."

'Seniority System Veteran' Japan Now Also Adopts Job Performance Pay

The reason why the introduction of job performance pay is mentioned as one of the most difficult reform tasks is due to the strong opposition from the labor sector, centered on large labor unions. Issues such as the revision of working hours to a '52-hour workweek' and the improvement of illegal union practices can be changed to some extent through laws or management and supervision, but the wage system in private companies is established through labor-management agreements, leaving little room for government intervention. Even if the introduction of job performance pay is promoted under the pretext of solving social problems such as aging and low birth rates, it is not easy for wage workers, whose livelihoods depend on their income, to accept it immediately.

If the wage system is completely reformed from a seniority-based system to one centered on job roles and performance, it is known that 30% of workers with good job roles and performance will see their wages increase, but 70% of general workers will have similar wages or some may even see a decrease. In countries like South Korea, where the seniority-based system is prevalent and labor unions are strong, especially in large corporations and among regular employees, restructuring the wage system is even more difficult. In fact, the Korean Confederation of Trade Unions (KCTU) has taken a negative stance on the government's job performance pay reform plan, saying it "reflects the wishes of management as they are," and the Federation of Korean Trade Unions (FKTU) has also listed blocking the promotion of job performance pay as a struggle agenda.

For this reason, some point out that it will be difficult to achieve a social grand compromise on wage reform until a real low-growth shock hits the Korean economy. Even Japan, which greatly influenced the spread of the seniority system in South Korea, experienced a long-term recession after the 1990s, which became an opportunity to quickly change the compensation system to job performance pay. When the seniority system undermined corporate competitiveness and became a matter of survival, large corporations actively sought to transform into a job performance pay system. At that time, then-Prime Minister Shinzo Abe issued guidelines on 'equal pay for equal work,' which is the foundation of job performance pay. Recently, Japanese companies such as Nikon and Sony have attempted personnel innovations by breaking the seniority system to improve efficiency.

Last August, officials affiliated with the National Public Officials Labor Union held a press conference urging a 7% wage increase in 2023 and a halt to the reduction of public officials. Photo by Jinhyung Kang aymsdream@

"If Job Performance Pay is Introduced, Wages Will Be Cut"…Workers' Great Concerns

Unlike other advanced countries such as the United States, opinions are raised that the rigidity of the labor market, the open recruitment system, and the culture of low pay for low-tenure employees in South Korea make it difficult to introduce job-based pay itself. For example, in industries such as nursing or public service, where the work is harder and the annual salary is lower for employees with fewer years of service, a sudden complete reform of the wage system to job performance pay would inevitably face strong opposition from mid- and senior-level employees who endured the 'high workload, low salary' period.

In response, academia suggests the need to flexibly determine the introduction timing, such as applying job-based pay only to newly hired employees, but this too is difficult to discuss as it may lead to generational conflicts and fairness issues. In particular, the seniority-based wage system is still widely perceived as suitable for income preservation over the life cycle and helpful for workers' stable life planning. A public institution employee in his 40s, Mr. A, said, "As I get older and my children grow, expenses for private education increase, and loans for cars and houses also rise, so it is indeed worrying to hear that the seniority system will be replaced by job performance pay now."

In the case of Kyobo Life Insurance, it announced in 2020 that it introduced a job-based pay system for all employees through labor-management agreement, the first in the financial sector, but faced internal turmoil due to strong union opposition over details. At that time, the union did not oppose the job-based pay system itself, but many employees expressed concerns about the salary decrease for employees in lower job roles, hindrance to job rotation, and unfair job evaluations. As a result, even among companies, there is an opinion that it is burdensome to readily promote the introduction of job performance pay, which is obviously opposed by unions.

"I Do More Work"…The Unyielding MZ Generation

However, among the MZ generation, dissatisfaction with the existing seniority-based order is considerable. They complain that it is unreasonable for employees who have been at the company longer to receive higher wages despite doing less work and having lower productivity. Mr. Kim Seong-hoon (34), working as an assistant manager at a major domestic company, said, "Last year, I received the best possible score in the personnel evaluation, but in the end, employees with more years of service received more money," adding, "It makes me think that I might as well just work as much as I get paid."

According to a report released by the Korea Chamber of Commerce and Industry in 2020, there is a significant gap between employees in their 20s and 30s and the older generation regarding organizational rationality and fairness. Employees in their 30s rated their organization's rationality and fairness at 36 and 22 points respectively, while employees aged 50 and above rated them relatively higher at 56 and 28 points. During group interviews at that time, many expressed self-deprecating voices such as "People in their 30s do the most work but get paid less, so the cost-effectiveness is good."

There are also many criticisms that it is unreasonable for employees who joined in the same year to receive the same salary despite differences in workload depending on the job category. This means that some workers are unable to receive higher salaries due to being tied to the seniority-based wage system. From the company's perspective, they want to offer high salaries to attract talent necessary for important jobs, but sometimes face difficulties in manpower supply due to being constrained by the wage system.

This is especially true in the financial sector's information technology (IT) jobs. As non-face-to-face and digital finance accelerate, financial companies are actively recruiting excellent IT talent but face difficulties in securing them. Unlike IT companies that offer high salaries, financial companies cannot offer salaries that deviate significantly from the existing wage system. A banking industry official explained, "We cannot pay more to IT personnel just because they are needed," adding, "So the best talents go to 'Naver, Kakao, Line, Coupang, Baedal Minjok (Ne-Ka-Ra-Ku-Be)' and do not come to us."

Economic, Social and Labor Council

Convincing Labor is Priority… "Must Compromise at a Reasonable Level"

Academia advises that to introduce a job-based pay system, the elements of the system must be clearly defined and evaluation criteria properly established. At the end of last year, the Korean Society for Critical Sociology pointed out in its 'Economy and Society' report, "For job-based pay to contribute to reducing wage inequality, fair job values must be derived through valid job analysis," and "Similar job information needs to be shared both inside and outside the organization." This means that job evaluation criteria and values should be operated transparently enough for employees to infer, not just known by the company.

Experts also emphasize that in order to change the seniority-based wage system, discussions should be held to persuade that expanding job performance pay is not only advantageous to management but also acceptable to labor, adjusting the level accordingly. A government official from an economic-related committee said, "There is a realistic problem of worker opposition, and many opinions say that the job evaluation system is still not objective, so many believe that a complete transition to a job-based pay system is impossible in South Korea."

The official added, "Usually, opposition to the seniority system is dichotomized as opposition to the job-based pay system, so the government broadly uses the term 'job performance pay' instead of seniority-based pay, but a 'comprehensive pay' system combining various elements could also be an alternative," and "Through various discussions in the future, we need to find ways to reduce the proportion of the seniority system and increase the proportion of job and performance pay while finding a consensus between labor and management."