SEOUL, Sept. 3 (Korea Bizwire) — After a South Korean court ruled on August 31 that regular bonuses and meal allowances are to be considered part of ‘ordinary wages’ at Kia Motors, significant attention is being focused on whether Kia’s average annual wage will now surpass 100 million won.
However, since salary negotiations are based on aggregate wages and are a function of a company’s solvency, most observers believe that real wages are unlikely to suddenly increase significantly.
Kia’s management is likely to cut overtime work or lower incentives as a means to curb a sudden leap in its total spending on wages.
Last month, Kia, in a preemptive measure, decided to do away with overtime on the premise that ordinary wages were set to increase.
In addition, industry analysts believe that other domestic automakers, as well as Kia, will move production offshore to take advantage of reduced labor costs.
According to a report released by Kia on September 1, the company’s average annual wage was approximately 96 million won last year.
If the verdict in the Kia case is upheld by the Supreme Court, not only will regular bonuses and meal allowances be added to the legal tabulation of ‘ordinary wages’, but allowances for night shifts and overtime and stipends for unused annual leave will also factor into the equation.
“Given the nature of the auto industry, night shifts and overtime are inevitable. If the scope of what consists of an ordinary wage is extended, overall extra pay will increase by 50 percent,” said Park Hanwoo, the CEO of Kia Motors. “Once it happens at Kia Motors, the labor union of Hyundai Motors will demand the same treatment, leading to a serious disturbance in the labor market.”
However, the exact sum of total wages to be increased and the rate of increase are difficult to estimate because there are many kinds of working groups and overtime payment as well as a number of different situations in which additional allowances are disbursed.
For now, the wage increase can only be estimated from previous cases.
According to a report by the Korea Employers Federation (KEF) in 2013, for a worker whose ordinary wage is 19.5 million won and total annual wage is 60 million won, if fixed regular bonuses (15.6 million won in total) were added to the ordinary wage, the total annual wage would become 76.3 million won, for a 27.3 percent increase.
At the same time, indirect labor costs of 9 million won including severance pay and social insurance fees would increase to 11.4 million won, elevating the personnel expense from 69 million won to 87.8 million, representing a 31.3 percent increase.
Roughly calculated, the annual average wage for Kia Motors’ workers overall would surge to far more than 100 million won from the current 96 million.
However, this theoretical increase is not expected to be an exact approximation of what will actually transpire with Kia.
The labor union and management meet once every year to decide wage increases for the year. However, management will not increase wages by over 20 percent beyond its capacity to pay despite the increase in ordinary wages.
“Labor and management are very likely to agree on increasing extra pay linked with ordinary wages, but management will reduce incentives or overtime work so as to minimize the sudden fluctuation in total wages,” said an auto industry official.