Construction Firms Cut Labor Costs Amid Downturn... Daewoo E&C Slashes 73.4 Billion Won in a Year [Real Estate AtoZ]

Decline in Construction Projects Amid Market Slump
Significant Reduction in Contract Workers
Decreasing Salaries and Executive Compensation
"Labor Cost Cuts Likely to Continue Until Market Recovery"

As the construction market downturn continues, major construction companies have started implementing cost-cutting measures. They are tightening their belts by adjusting their workforce, particularly non-regular employees, and reducing executive compensation. As a result, employee salaries have significantly decreased.

According to the Financial Supervisory Service's electronic disclosure system on September 5, among the five major construction companies-Hyundai Engineering & Construction, Daewoo Engineering & Construction, DL E&C, GS Engineering & Construction, and POSCO E&C-four companies, excluding GS Engineering & Construction, saw a decrease in total employee salaries in the first half of this year compared to the same period last year.

Daewoo Engineering & Construction recorded the largest decrease in total employee salaries, reducing the amount by 22.4% from 327.9 billion won to 254.5 billion won in just one year. Hyundai Engineering & Construction and POSCO E&C also saw reductions in the 5% range, while DL E&C cut its total employee salary expenses by 2.5%.

The main reason for the decrease was a significant reduction in the number of employees, especially contract workers. In the first half of last year, Daewoo Engineering & Construction had 5,818 employees, but this number fell to 5,299 in the first half of this year. The number of regular employees decreased by 156, while the number of contract workers dropped by 363, which is 2.3 times more. At Hyundai Engineering & Construction, the number of regular employees actually increased by 157, but the number of non-regular employees decreased by 296. While some of these changes were due to deliberate workforce adjustments amid a weak market, the natural reduction in staff as construction projects declined also played a role.

Some construction companies also cut total executive compensation. Major companies that reduced total compensation for non-registered executives compared to the same period last year include Daewoo Engineering & Construction, DL E&C, and POSCO E&C. The reduction in executive compensation at these companies was greater than the decrease in employee salaries. Daewoo Engineering & Construction saw the largest cut, with compensation dropping by 38.4% from 11.673 billion won to 7.189 billion won. The number of non-registered executives was also reduced from 85 to 66. DL E&C cut executive compensation by 30.1%, from 9.333 billion won to 6.521 billion won, and POSCO E&C reduced it by 27.6%, from 10.278 billion won to 7.444 billion won.

Mid-sized companies, which have been hit harder by the economic downturn than large construction firms, saw even greater reductions in salaries. For example, IS Dongseo’s total employee salaries for the first half of the year stood at 1.6963 billion won, a decrease of 26.2% compared to 2.2978 billion won in the same period last year.

It is highly likely that construction companies will continue to cut costs for the foreseeable future. According to the Korea Institute of Construction Industry’s Construction Business Survey Index (CBSI) released last month, the index fell for the fourth consecutive month to 68.2. The CBSI quantifies construction companies’ perception of the market, and a figure below 100 indicates that many view the current market pessimistically. The forecast index for September was recorded at 65.5, which is 2.7 points lower than the August figure. An industry insider stated, "With fewer new projects breaking ground both domestically and internationally compared to the past, the number of employees and wage costs are decreasing. Companies that have not reduced costs are likely those that have managed their construction sites or order volumes well." He added, "Until the construction market recovers, the trend of reducing labor costs is expected to continue."