Wage Levels and the Management of Wages

The structure of wages in Korea has traditionally been based on compensation for seniority. This seniority-based wage structure was born of Korea’s industrialization process and, in some ways, seemed to be a stable and reasonable wage structure during periods of high growth (Park and Lee, 1999). After the 1998 financial crisis, however, the country slipped into low growth in a rapidly changing management environment fraught with uncertainties in which the spotlight fell on the negative effects of the existing structure’s rigidity. Against this backdrop, efforts were made to align base salaries with the level of contribution a worker made to the organization through a more flexible wage structure (Kim, Park, Park, and Lee, 2005). Included in these efforts were attempts to explore such base salary schemes as skill-based pay and job-based pay in addition to seniority-based pay steps, as well as to explore approaches to reduce the proportion of the fixed base salary in favor of expanding the proportion of performance-related variable pay that fluctuates in accordance with productivity.