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Korea – Calls for performance-based wage system as companies earnings slide

26 May 2015

Labour costs for South Korea's 30 leading business groups have been rising over the past five years despite a continued slide in their earnings, resulting in increased calls to adopt a performance-based wage system, reports yonhapnews.co.kr.

Labour costs at the large groups; including wage, pension, and employee benefits, rose at an annual average of 3.8% per employee between 2010 and 2014, according to the report by the Federation of Korean Industries (FKI).

In contrast, the average operating income earned per employee at the groups decreased at an average rate of 12.4% each year over the same period, while sales fell by 1.7%.

The latest findings come amid worries over increasing labour costs among local companies, with many planning to cut back hiring this year. According to a separate survey by the FKI, the leading business groups plan to hire 6.3% fewer new hires this year compared with last year.

Experts say that in light of the increasing labour cost burdens, businesses should change their wage system to reflect their business performances.

"The companies should reorganise their payment systems into one that is based on the performance of the workers," said Lee Cheol-hang, head of employment and welfare research team at FKI.