Korean firms should embrace mature workforce
By Kim Jae-kyoung
South Korea is emerging as one of the fastest-aging societies in the world. Due to a fall in working population there are growing concerns that Korean firms will face big challenges in the near future, ultimately undermining the nation’s economic growth potential.
Such concerns seem plausible but one global HR expert points out that the country can turn this challenge into an opportunity if Korean companies develop and improve their human capital management program in a more sophisticated way.
In an interview with Business Focus, Cecil Hemingway, a global retirement practice leader for Aon Hewitt, said that an aging population is not necessarily bad news for open economies like Korea.
“In an increasingly knowledge based world economy, experience and maturity can be a big plus as long as companies have the flexibility to manage performance and locate labor intensive operations in countries with labor surpluses,” he said.
Hemingway, who is a consultant to multinational clients on retirement issues, stressed that in an aging population, the most important human capital program is the availability of work for those who can and want to work.
“This should be combined with a safety net that provides for those whose health no longer allows for productive employment plus the ability for individuals to put aside supplemental funds to accommodate their individual needs and retirement aspirations,” he said.
“The Korean national pension system plus a well run employer-based retirement system can probably accomplish this goal. What companies can do is look at their HR programs and practices to ensure that they are flexible enough to accommodate the needs of an increasing mature workforce.”
He added that as Korean companies expand their operations outside Korea, they will have to embrace culturally diversity in order to attract and retain the necessary talent.
The following is an excerpt from the interview.
Q: Aging has emerged as one of the most serious issues both for the government and corporations. From the business perspective, how is this trend affecting corporations?
A: Corporations tend to take a broad view on aging. From a business perspective, the emergence of increasingly elderly and often wealthier population pockets around the globe means that businesses have to adapt their products and services over time to meet the needs of this growing and attractive segment of the consumer market.
From a workforce perspective, it means that businesses have to become flexible to accommodate workers who are still productive but often prefer more balance in their lives.
This might require a rethinking of what retirement means and more disciplined approaches to performance management.To the extent that aging creates localized labor shortages, businesses can and will continue to tap into surplus labor still available in places like India, the Philippines, and Latin America.
Q: Can you pick a couple of global companies that other firms can model after in terms of retirement programs?
A: We cannot comment on any particular client but can comment on broad trends. Increasingly companies are realizing that the world is too complex and unpredictable for them to make blanket retirement promises to their employees.
However, they also realize that retirement planning is too complex and the decks are too stacked against the individual for them to step out of the picture altogether. As a result, progressive companies choose to play the role of coach and referee.
In this role they focus on governance to ensure decisions are made in the best interest of their employees, fees are transparent and competitive and communication is balanced and objective. They also use their business skills and global purchasing power to make sure employees get access to high quality and institutionally-priced products and services.
Q: Some large Korean companies have also started showing interest in retirement programs but they are lagging behind their global counterparts. How do you evaluate their programs and how can they improve?
A: The challenge for Korean companies is that the provision of retirement programs is dominated by the financial services industry without a formal fiduciary mandate on the employer. This often leads to the easy but potentially suboptimal result of having the service provider structure and deliver the retirement program with little oversight over outcomes and fees by the employer.
In the case of Korean companies, business relationships often play a large role in which service providers are chosen whereas multinational companies are more likely to take a stronger oversight role.
Our sense is that administration and investment management fees in Korea are high compared to fees in countries with mature retirement systems like the U.S., U.K. and Australia. Over time this fee difference could result in a large gap in retirement wealth for the Korean consumer. Korean companies can change this dynamic by voluntarily taking on a more active oversight role over the monitoring and management of their retirement programs.