Examining the seniority-based pay system in Korean companies: current trends and its implications for Asian economies

Abstract

Human resource management, including the design and implementation of pay systems, is influenced by the specific national context in which it operates. Challenges often arise when HRM practices that have been established in advanced countries are transplanted to developing nations, as they may not fully align with the unique circumstances and cultural dynamics of the target country. Until the 1980s, rapidly growing South Korean companies embraced the seniority-based pay system (SPS) in order to encourage employee tenure. The 1997 IMF foreign currency crisis led to an effort to shift away from this model, which was seen as unrelated to job roles and performance, towards alternative systems. Despite two decades of reforming efforts, SPS pay still prevails, particularly among production workers at large manufacturing companies under trade unions. The workplace panel survey data provides evidence that the implementation of a SPS system does not display any significant negative impact on firm performance, as measured through various methods. As such, the question is not whether to abolish the old system, but instead how to accommodate the new system. The study emphasizes aligning pay systems with the nation's history, culture and industrialization rather than imposing foreign models.