Government: "Reduce Corporate Cost Burden"... Full-Scale Support for Reform from Seniority System to Job and Competency-Based System

Deputy Minister Lim Seo-jeong's Briefing on "Support Directions for Expanding Job- and Competency-Based Wage Systems"
"Seniority System Increases Corporate Burden Due to Aging and Reduces New Hiring Capacity"
Need for Autonomous Labor-Management Consultation and Communication... Commitment to Discover and Spread Win-Win Cases
This Year, Consulting Support for Companies in the 'Job-Centered HR Management System Introduction Support Project'

Ministry of Employment and Labor. Photo by Hyunmin Kim kimhyun81@

[Asia Economy Reporter Kim Bo-kyung] The government is set to actively support companies in transitioning to a job- and competency-based wage system. The seniority-based wage system, where wages automatically increase with years of service, is considered incompatible with today's labor market structure as it increases corporate burdens due to an aging population. The government plans to promote cases of wage system reforms through autonomous labor-management consultations.

◆ Ministry of Employment and Labor promotes autonomous wage reform by labor and management = On the morning of the 13th, Deputy Minister Lim Seo-jeong of the Ministry of Employment and Labor held a briefing at the Government Complex Sejong on the "Support Direction for the Expansion of Job- and Competency-Based Wage Systems."

At the briefing, Deputy Minister Lim stated, "We will strengthen support so that labor and management can autonomously reduce excessive wage seniority and reform the wage system into a fair one centered on jobs and competencies."

He added, "In addition to expanding consulting for improving existing wage and evaluation systems, this year we will newly establish a support project for introducing job-centered personnel management systems to ensure substantial support across overall personnel management."

Deputy Minister Lim explained mainly the side effects and problems caused by the seniority-based wage system in the industrial field amid ongoing low growth below 3% annually and an aging population structure.

He said, "Because wages continuously increase with years of service, it increases the cost burden on companies due to aging, which may reduce the capacity to hire young workers or induce early retirement of middle-aged and older employees."

According to the Korea Labor Institute's "International Comparison of Wage Seniority (2015)," in South Korea, wages of employees with over 30 years of service are about 3.3 times higher than those with less than one year, the highest among OECD countries, and about twice the average of 15 European Union countries.

Deputy Minister Lim pointed out that the seniority-based wage system acts as a cause of wage gaps between regular and non-regular workers, as well as between large and small-to-medium enterprises. He also noted that the seniority system sometimes violates the principle of "equal pay for equal work" and causes issues regarding wage fairness.

However, he emphasized that wage system reform must be based on labor-management consultation and communication. Deputy Minister Lim stressed, "A company's wage system cannot be unilaterally changed by the government or employers. Through sufficient consultation and communication between parties, alternatives acceptable to workers must be developed."

He added, "There needs to be ample discussion on a desirable wage system suited to our reality through social dialogue among labor, management, and government, and we must discover and spread cases where both labor and management can achieve a win-win."

◆ Manual production and distribution... Support for corporate consulting = In response to changes in the labor market environment, many companies recognize the limitations of seniority-based pay and are attempting to shift to wage systems based on job and competency. Various efforts are underway, such as mitigating seniority under the seniority wage system or adding elements like job-based pay, competency-based pay, and role-based pay to existing wage systems.

The Ministry of Employment and Labor is conducting a workplace innovation consulting project to assist companies in reforming their wage systems. It has also continuously provided market wage and job-related information through the Wage Job Information System (wage.go.kr) for companies to reference.

This time, a manual titled "Catching Up with Job-Centered Personnel Management" was produced and distributed. Focusing on job-based pay, a representative job- and competency-centered wage system, it provides references on the necessity, procedures, methods, and considerations for wage system changes.

The material includes ▲simplifying wage composition ▲various types of wage system reform methods and cases ▲job analysis and evaluation methods for introducing a personnel management system based on job value ▲and how to use newly developed universal job evaluation tools for manufacturing industries.

This year, the Ministry will newly launch a 400 million KRW-scale support project for introducing job-centered personnel management systems. Professional consulting will be provided to companies wishing to introduce job management systems in eight industries where job evaluation tools have been developed (healthcare, steel, finance, IT, pharmaceuticals, etc.).

This content was produced with the assistance of AI translation services.