Wage-Peak System Brings Mixed Reviews

The Korea Appraisal Board has dropped the “wage-peak system,” which it introduced at the end of 2004. The board decided to scrap the program in November last year, the first among around 100 domestic companies that have adopted it.

Yoon Tae-hong, business management director at the bureau, said Sunday, “Thirty people who were under the system until last year will remain. But from this year, we will no longer have the program.”

The bureau also lowered the retirement age to 58 again from 59, as a result of the system’s termination. Instead, it will raise salaries to previous levels.

Under the wage-peak system, salaries were to gradually decrease three years before retirement.

A bureau source said the system was dropped because of many problems, such as the disrupted seniority-based order in the workplace and grievances of those assigned menial work according by the system.

○ “We Need Work that Maintain Our Decency.”

The wage-peak system gives 56-year-olds 80 percent of their salary in the first year, 70 percent in the second, and 50 percent in the third.

As a result, 20 working-level employees were allowed to continue to work, but seven to eight general managers at the bureau were simply assigned to research the prices of real estate at the site. The managers protested the decision, saying, “Please give us management work to maintain our decency as managers.”

A bureau employee said, “A boss had to do simple work under his employee at a small organization with only 800 employees, so all staff seemed depressed, and the managers did not do their jobs properly.”

This reflects the organization’s inability to overcome the emphasis on seniority in Korean corporate culture.

A labor-management agreement resulted in the bureau dropping the program.

Kim Jeong-han, a researcher at the Korea Labor Institute, said, “It is the first time that the wage-peak system was abandoned in Korea.”

○ Not Enough Work for Managers

Following the Korea Credit Guarantee Fund in 2003, Woori, Hana and Kookmin banks adopted the wage-peak program, and were later joined by the Export-Import Bank of Korea and the Korea Housing Finance Corporation.

The majority of the businesses assign work such as debt collection and management to those under the wage-peak system.

“We introduced the system to solve the problem of so many people seeking to climb the corporate ladder, but didn’t have enough jobs,” said a commercial bank staff. “Instead, we created new jobs for auditing at the regional branch. People neither expect great results nor evaluate their work.”

Since the system was introduced at a bank, one general manager at a branch has not shown up for work at all.

The manager said, “I was told to wait at regional headquarters, but I have no assignment, so I just stay at home. Even if I am assigned, I show customers around or do sales with a single desk at regional headquarters. I am not motivated to work hard.”

○ Technicians Motivated by Wage-Peak System

Unlike the financial sector, which uses the system to deal with surplus employees, the system is hailed in manufacturing because technicians have done the same work after the program’s implementation.

Taihan Electric Wire introduced the system for the first time among manufacturers for technicians over age 50, excluding office workers and R&D staff.

“While companies can retain experienced workers at a lower cost, older employees can work longer,” one Taihan employee said. “Since the results of the wage-peak system are good, we have extended the retirement age to 59.”

A worker at Daewoo Shipbuilding and Marine Engineering said, “It works well, because despite the low rise in salary, wages do not decrease, which does not discourage employees. Even after application, the performance review remains strict so employees are given incentives.”

LG Electronics, LG Micron and LG Cable have also run the wage-peak system since last year.

Kim Gi-Tae, manager of the labor-management human resource team at the Korea Chamber of Commerce and Industry, said, “Japan introduced the wage-peak system ahead of us and is reaping greater results among technicians with its aging society. For the system to take root in other areas like finance, jobs should be created for employees near retirement age to give them a sense of reward.”