Toyota Abolishes Seniority-Based Pay in 2021... Volkswagen Also Introduces Job-Based Pay
Domestic Companies Expanding Adoption of Job and Performance-Based Pay
Hyundai Motor Union Unable to Give Up Seniority-Based Pay System
Domestic conglomerates are hastening to reform their wage systems to focus on job roles and performance in line with global standards. Global companies have adopted not only job-based systems but also differentiated compensation based on work skills. Even Japanese companies, the originators of seniority-based and collective bureaucratic systems, are embracing performance-based approaches. In contrast, the Hyundai Motor labor union under the Korean Confederation of Trade Unions still clings to the seniority-based wage system, going against global trends alone.
According to comprehensive reporting on the 3rd, Hyundai Motor's labor and management failed to narrow their differences and concluded negotiations on the 28th of last month at the 'Research Staff Wage System Improvement Labor-Management TF.' At the launch of the TF, both sides pledged to present a tangible reform plan by March this year. Although additional negotiations remain possible, unless there is a clear change in stance, it seems difficult to reach a dramatic agreement.
Negotiation representatives of Hyundai Motor Company labor and management sitting face to face [Photo by Yonhap News]
Toyota Abolishes Seniority-Based Promotions... Volkswagen Pays Differentiated Wages by Job Difficulty
The global automotive industry has long differentiated wages based on job roles and work difficulty. Toyota abolished regular promotions based on seniority for managerial positions at the section chief level and above in 2019. They eliminated the seniority system and strengthened performance-based compensation. Subsequently, in 2020, the scope was expanded to general office workers, and in 2021, to production workers, abolishing the seniority system for all employees.
Volkswagen has applied grade evaluation analysis techniques since the 1950s. Even among production workers, job values are assessed separately. Job hierarchy and wage grades are determined according to 14 evaluation criteria. These criteria include professional knowledge, skill (manual dexterity), working environment, and scope of responsibility. Even within the same production job, wages are higher for those frequently exposed to harsh working conditions or responsible for many tool-related tasks.
Experts believe that referring to Toyota's case, the current negotiations could serve as a draft for Hyundai Motor Group's future performance-based wage reform plan. Starting with wage reforms for managerial and general office staff, the abolition of seniority could be expanded to all job categories. They advise finding a job- and performance-based wage system suited to Korea's labor-management relations by referencing global corporate trends. Professor Kim Dong-bae of Incheon National University's Department of Business Administration said, "The problem with Korea's wage system lies in excessive seniority," adding, "It is important to wisely choose a method that fits individual company circumstances and gains consensus between labor and management to resolve this."
Wage Differentiation According to New Technology Demand... Support for Retraining
The business community is increasingly adopting job- and performance-based wage systems. Simplification of rank steps and abolition of promotion tenure pursued by domestic companies lay the foundation for a performance-oriented culture. Among global companies, the job-based wage system has already become a global standard. Wages differ by job, with increased rewards for employees who excel in their respective roles.
Global logistics company Coupang is a representative domestic company that has established a job- and performance-based wage system. Coupang puts considerable effort into 'performance measurement' to establish a performance-oriented culture. Managers must provide clear reasons when assigning performance grades to individuals. Additionally, sufficient time is allocated for expressing opinions in multiple meetings involving numerous stakeholders.
LG CNS reflects technical competency levels in employee salary negotiations. They classify levels into five stages based on certifications and work capabilities, with corresponding salary increase rates. For example, a first-year employee with outstanding work skills can receive a salary increase of over 10%. Conversely, a manager with over 20 years of experience who does not engage in self-development may face a salary freeze.
Global company IBM considers both work capabilities and market trends. IBM pays higher salaries to employees possessing skills that are in high market demand. If an employee's skills are based on technologies already obsolete in the market, their salary is frozen, but they are given opportunities to learn new skills. IBM supports the costs and time required for employees to continuously update new technologies needed in the future.
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