▲ Labor union members protesting against performance-based wage system, dubbed “unemployment wage system.” Provided by newsroom.etomato.com.

In the midst of continuous economic slowdown in South Korea, the government has introduced a new labor policy for public enterprises: performance-based wage system. Although this policy is aimed at all public enterprises within the country, those of the finance sector have had some of the most clamorous days due to strikes being organized by labor unions. Employees in financial public enterprises have vigorously protested against the system by organizing strikes, while the board of directors is desperately looking for a breakthrough in their new wage policy.


Recently, the Korean government introduced a new wage policy for public enterprises called the performance-based wage system, which will make the wage-difference between low-performance workers and high-performance workers as high as 50 percent. This policy is scandalous, since one of the biggest attractions of working in government-owned companies was having a stable work place and wage until the age of retirement. Although all public enterprise employees opposed this legislation, finance employees were the most outspoken mainly because, according to Bae Hyeon-Kee, the president of the Hana Institute of Finance, the finance corporations were affected the most by the policy.

In reaction to this legislation, labor unions of financial public enterprises have been planning a massive strike, demanding the withdrawal of the policy. According to the Yonhap News, 95 percent of the labor union members agreed on participating in the strike, which is 79,068 members out of 82,633 voters. It is also anticipated that the strike will be one of the biggest. The strike is planned to take place in September, although the exact date has not been specified. By referring to the number of people who plan to go on a strike, one of the officials of the labor union insisted that “the employee’s anger toward the performance-based wage system is at its peak.”

What the Two Sides Argue for
Over the last few months, the policy had been put into effect in many government-based enterprises, until the labor unions started organizing strikes against it. The labor unions censured the actions taken by the board of directors. Legally, there has to be a mutual agreement between the board of directors and the labor unions before putting a new labor policy into effect. However, according to Yonhap News, the labor unions have accused the board of directors of forcing the legislation into effect without any consultation with the labor unions. As a result, the labor unions have called for a legal action, stating that the policy was adopted illegally and unethically.

The labor unions also criticized the policy itself, arguing that the new labor policy will compromise employee’s welfare and make it easier for corporations to lay off workers. The corporations explained that the original wage system has been causing too much fixed cost, reducing profits to dangerous levels. However, one labor union official argued that the major intention behind the legislation was also to “make the workers more vulnerable to unemployment.” The labor unions have therefore demanded that either the legislation be withdrawn or be amended.

Advocates of the policy disagree. Economically, the performance-based wage policy cannot be better. As an enterprise that is solely run by tax, it is crucial to ensure that none of the taxes are wasted. Professor Kim Seik (Department of Economics) agreed with president Bae that the new legislation will improve work efficiency by, according to President Bae, “getting rid of the free-rider problems within the working environment,” and by “retaining the balance between tax expenditure and the number of eligible workers.” On top of that, Professor Kim insisted that one of the key reasons that people prefer to work for public enterprises is because “employees are overcompensated,” and that the new policy will “troubleshoot this problem to ensure that taxes are not wasted on underperforming employees.”

In addition, Professor Kim preferred to call the policy an introduction rather than coercion. He also opined that the policy will actually be a remedy to ethical issues present in public enterprises. From a purely economic perspective, he insisted that “there is no reason to criticize the performance-based wage system.” Ethical issues arise when public taxation is being misused to pay workers that do not deserve as much. Professor Kim said that the policy will therefore reduce the amount of wasted public taxation when paying workers. Although he did refrain from commenting on the legality of the board’s actions in putting the policy into effect, or the objectivity of the criteria used when assessing performance, he stated that the policy is going in the right direction.

Professor Kim also criticized the actions taken by the labor unions, claiming that employees of public enterprises were not the poor. Union members described themselves as the have-nots oppressed by the corporate giants, and that the policy would only make the workers more disadvantaged. However, Professor Kim claimed that, compared to small business workers, those who work for big public enterprises had no reason to complain about what is to come. “The legislation, from an economic perspective, is only a remedy to what is currently wrong,” said Professor Kim, “and this policy will definitely bring economic order.”
 
   
▲ A small-scaled protest against the performance-based wage system. A major protest is expected in September. Provided by sisamagazine.co.kr.
 
Chances of Mutual Agreement
According to President Bae, it seems unlikely that the labor unions were ignorant of the fact that the new policy will improve work efficiency. However, he did concede that the circumstances of the employees were understandable, considering that they would have to “give up a considerable portion of their benefits.” As for now, the labor unions have refused to yield any of their current positions, and the board of directors have struggled to come to an agreement with them. President Bae mentioned that the ideal conclusion of this issue is a mutual agreement. However, he holds little hope that an agreement will be reached and expects that the law will have to intervene.

What is to Come in the Future
President Bae noted that the introduction of the performance-based wage system goes back a long way, pointing out that the most fundamental cause was the lagging economic growth within South Korea. “Public enterprises have a tradition of using hobongjae, in which your wage is determined by how long you have been working,” said Bae. “This made sense in the past when the Korean economy was booming, and people needed more money to afford the changes that occurred along with the economic boom. Now that the economy is at a standstill, it no longer makes much sense.”

President Bae also insisted that the new wage system will lay a foundation for an external labor market which will increase work efficiency by putting workers in positions where they work most efficiently, based on their skills. This market is not found in South Korea, yet it has had a history of being successful elsewhere. The new wage policy will allow corporations to distinguish who works best and who does not. Once the labor market is established, the issue of unemployment which the laborers are most concerned about will no longer frustrate them.

The legal status of the introduction of the policy remains unclear. President Bae, just like Professor Kim, preferred not to make any comments on whether the methods of introducing the policy were illegal or not. They argued that this issue is for the law to decide and this will likely happen sooner or later. Although obstructed by unhappy labor unions, the policy has a social and economic value that is also acknowledged by the opposition. It is difficult to predict how the law would react, but once the new system finds its place in every government-based company, it will turn out to be a valuable social and economic asset for South Korea.
 
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