Seniority-based wage system at public institutions

The Korean government announced on Wednesday that it would entirely scrap the seniority-based wage system, in which public servants’ salaries automatically increase based on seniority. It will be replaced with the job-based wage system, where compensation is given based on work difficulty or the level of responsibility associated with the job. The new system will be introduced as a replacement to the performance-based salary system, which was introduced during the previous administration and viewed as obsolete. The seniority-based wage system has been notoriously known as the cause of complacency commonly found in public institutions. It is welcoming news that the government, though belatedly, has decided to scrap the system, which has become synonymous with inefficiency at public institutions.

During the presidential campaign, President Moon expressed his opposition for the performance-based compensation system while noting the need to revise the seniority-based system. However, the reform of the system was delayed after the new government took office. In June last year, the Ministry of Strategy and Finance eliminated the performance-based wage system, leaving organizations to decide on their own, by board or union consensus. Such hasty elimination, carried out without an alternative system in place, however, resulted in the revival of the seniority-based system at the majority of 120 public organizations. This raised criticism that the government had run counter to public reform, being watchful of union response at public institutions.

The lax management at public organizations needs to be reformed immediately. As of 2016, only 101 public institutions, which is barely one third of the 332 public organizations, managed to make operating profit. Some have debts that amount to 10 times of capital. In spite of such poor financial conditions, however, employees continue to enjoy high salary levels and lifetime employment, hence its "gravy train" image. Such high-cost, low efficiency structure is supported by the seniority-based system, where salary is determined regardless of productivity or management performance. We must not forget that the side-effects caused by the performance-based salary system introduced in the former Park Geun-hye administration, which was hastily adopted by board decision. We should not nullify the need for public reform.

There are many obstacles to be overcome by the government if it seeks to demolish the iron rice bowl image that has represented guaranteed lifetime employment at state institutions. There may be opposition by the union, which previously voiced its opinion during the adoption of the performance-based salary system. However, we will not be able to prevent lax management and weakening competitiveness of public institutions if we fail to reform the archaic seniority-based wage system. Failing to do so will only result in increased public burden. It is a question of whether the Moon administration will side with the union or the public in the elimination, the first step for public reform.