SEOUL, Korea, April 18, 2014 (Korea Bizwire) – The employers in Korea are getting worried about the increasing pressure of higher labor costs upon “Extension of the Retirement Age to 60 Laws” to be taking effect in 2016. In order to minimize the damage, companies are calling for a wage peak system.
According to the Korea Chamber of Commerce and Industry (KCCI)’s recent survey of about 300 companies, seven out of ten respondents were in favor of the implementation of a wage peak system as the means to ease the financial burden of labor cost.
KCCI also have reported that 67.3 percent of companies were concerned about the payroll cost increase upon extension of the retirement age.
Most of the companies in Korea are currently adopting the seniority-based wage system in which the salaries of employees automatically increase as years pass by. Therefore, extension of retirement age without changing the constitution of wages may end up exerting huge pressure on companies.
A KCCI official said, “Under the conventional seniority-based wage scheme, employees over 50 years old are not considered as cost effective, and most of them get pensioned off in turn.” KCCI insisted that production-based wage systems like the wage peak system in which the costs are likely to be in harmony with the production are called for.”
However, such a wage scheme reform including the implementation of the wage peak system would not be easy to be achieved. Based on the Labor Standards Act, in order to make any changes unfavorable to the employees like the wage peak system, more than half of the entire staff should agree with it.
On the question regarding such a matter, almost half the companies answered they wouldn’t get it approved by half of their employees (43.2%). Upon the wage system reform, conflicts in businesses would be unavoidable.
Companies also predicted that the mandatory adjustment of retirement age would influence badly on the employment of youth, if it would not be paired with a wage system reform. As many as 56.5 percent of the companies expected the number of new hires would be decreased.
In order to achieve a balance between the employment of the youth and the middle-aged, companies suggested to come up with positions suitable for the middle-aged (28.4%), reform the wage system to either performance-based or job-based (25.7%), improve the productivity of the middle-aged employees (25.4%) and implement the wage peak system (20.5%).
Written by Robin Koo (email@example.com)