No factory for old men: Hyundai Motor seeks to end seniority-based pay

Thu Apr 16, 2015 5:08pm EDT
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By Hyunjoo Jin

SEOUL (Reuters) - In a bid to curb rising domestic labor costs, Hyundai Motor Co is seeking to base wages on merit not seniority in an overhaul of a decades-old salary system that puts the South Korean firm on a collision course with its activist union.

South Korea is the world's fastest ageing major economy, and high labor costs are eroding its manufacturers' competitive edge as economic growth slows.

If Hyundai Motor, one of South Korea's biggest employers, succeeds in revamping its pay structure, other companies are likely to follow suit. That will accelerate a move away from a wage system still prevalent in South Korea and which is a legacy of years of heady economic growth and a culture that reveres seniority.

"Our wages have reached a critical limit as a manufacturing company," Hyundai Chief Executive Yoon Gap-han said in a letter to workers proposing the change, which was seen by Reuters. "I am concerned that Hyundai may face a situation where it is impossible to produce vehicles at domestic factories anymore."

Hyundai Motor is the flagship company of South Korea's second largest conglomerate, and one of its most influential. Its long-serving workers in Korea earn nearly twice as much as junior workers doing similar work, a company spokesman said, and overall, they are paid more than their colleagues elsewhere, including in the United States.

The restructuring proposal would not reduce current wages or result in immediate cost savings, the company said, declining to say how much savings it was targeting. Experts, however, said it would control future wage costs as workers age and the company's growth slows. The average age of Hyundai's unionized workers in South Korea is 45.5 years.

"But it will take an enormous time to reach an agreement," a Hyundai Motor executive said, declining to be identified due to the sensitivity of the issue.

Hyundai Motor employs 65,000 people in South Korea, most of them union members.   Continued...

Cars made by South Korea's automakers Hyundai Motor and affiliate Kia Motors are parked at the companies' shipping yard at a port in Pyeongtaek, south of Seoul in this January 20, 2014 file photo. REUTERS/Kim Hong-Ji/Files