Hyundai Motor seeks performance-based wage system

By Park Jin-hai

Hyundai Motor says it is seeking to introduce a performance-based wage system to reduce labor costs.

The move, which comes after the company won its legal battle against the union over ordinary wages, is expected to bring protests from workers.

Hyundai Motor vice chairman Yoon Yeo-chul said the company needed to replace the seniority-based system with one based on productivity.

“Having a seniority-based wage system when global competition gets fiercer, it is almost impossible to catch up with our rivals such as Toyota,” he said.

“As agreed with labor, we will come up with a new wage system that can replace the current one by March.”

Seoul Central District Court ruled on Friday that only daily bonuses should be included in “ordinary wages,” the basis for fixing employees’ benefits, rejecting union claims for a broader application.

The court said that a regularly paid daily-counted bonus to two of the 23 plaintiffs could be calculated into ordinary wages, but denied the others because the bonus payments were not regular enough.

As the ruling is retroactive for the three years, the two successful plaintiffs will be paid about two million won ($1,850) each. The group collectively sought 800 million won.

As the two successful plaintiffs represented 5,700 workers at Hyundai Motor, it is estimated the company will now have to pay settlements of about 10 billion won.

On the day of the ruling, the carmaker released a statement saying the current wage system could bring about the demise of the company and the union.

The company said that a retirement age of 60, union demands for a higher legal retirement age, and an aging workforce all aggravated the present high-cost, low-productivity wage system.

“Society needs reduced working hours, quality jobs and a higher retirement age, but under the current system that cannot be had,” the company said.

“Flexibility in the wage system, through an introduction of a performance-based wage system and a wage peak system, is a make-or-break issue for the company and a necessity to provide job security for workers.”

German carmakers use a performance-based and job-based wage system, while Japan, after several changes since the 1980s, has been moving towards a grade system based on skills and competence development.

In contrast, Hyundai Motor’s seniority-based system that has been in place for decades raises wages automatically each year, unrelated to hourly production.

A labor-management joint committee was set up in November to deal with thorny labor issues such as the revising the wage system and expanding ordinary wages.

According to the Korea Labor Institute, the wage for a laborer who has been in the industry for 20-30 years is 3.13 times that of a worker with one year’s experience. In comparison, Germany has 1.9 times, the U.K. 1.57 times and Japan 2.42 times.

However, Hyundai Motor’s union says the wage rise issue is not as serious as the company claims. It says the fixed wage, including base pay and ordinary wages, is low, while flexible wages such as overtime and bonuses contribute most to wage rises.