Korea’s Second Wage Revolution

The “second wage revolution” has started for Korean workers.

After the financial crisis, Korean companies went through the “first wage revolution” by giving performance-based incentives on top of traditional wages based on seniority.

Following the first revolution, the wage gap between well and not-so-well performing workers continued to grow.

While workers are still reeling from the shock of the performance-based wage system, some companies are adopting a new wage system. The so-called “job function-based wage system” pays differently according to the value of the job.

The adoption of this system shows that the standard of wages is moving from workers to work. Experts are calling this Korea’s “second wage revolution.”

As one’s position and wage are now unlinked, the whole meaning of promotion has changed. The promotion system that took a worker’s past performance and language skills into account does not exist anymore.

When there is a vacancy for a team or division head, the person most suitable for the job will fill the seat. But his or her paycheck will not change.

CJ, Amore Pacific, Samyang Corporation, Orion, Foreign Exchange Bank and other conglomerates and financial institutions all have adopted this new system in the past three to five years. This is expanding to other middle-standing companies as well, such as Pulmuone and Samik LMS.

Since a job-function-based system will go against the principles of “equal pay,” there are concerns that it will be difficult for it to gain approval from labor unions. However, the views of the labor unions are changing as well.

Experts say once the new system is firmly established, wage flexibility in Korean society will improve. It could then provide a new opportunity to resolve the problem of part-time workers.

The LG Economic Research Institute’s Lee Chun-geun said, “If the wages can be adjusted according to the workers’ contribution or performance, then there is no need to fire older workers and hire part time workers. The job-function-based wage system is a realistic alternative that allows companies and workers to coexist.”

Joong-Hyun Park Sun-Mi Kim sanjuck@donga.com kimsunmi@donga.com