The chief executive of Company A, a manufacturer in Chungnam Province with 150 employees, said he recently pushed to introduce job-based pay but ultimately shelved the plan. Wage gaps among staff were already wide, shaped by the experience each brought at hiring and by individual negotiations, and resistance to the criteria for valuing jobs was fierce. As a small firm, it had few senior positions available, making it difficult to show employees a path to higher pay. "We tried several times, but for now we have given up on job-based pay," the CEO said. "After moving to an annual salary system, demands for better benefits, such as a 4.5-day workweek, only grew louder."
Company B, an environmental services group with 500 billion won ($360 million) in revenue, took the opposite path. In 2019 it scrapped the seniority pay tables at its headquarters and more than 30 subsidiaries and put a job-based pay system in place. The overhaul came after salaries for junior and assistant-manager staff lingered in the bottom 25% of the industry and young employees kept leaving. "We divided all work into 120 job categories and cut six ranks down to three," the company said. "We reined in the pay increases that had automatically accumulated for higher-ranking staff under seniority rules and redistributed that money into base pay and performance bonuses for working-level employees."
Seniority-based pay, under which wages rise with years of service, is holding back companies' ability to secure talent and raise productivity. High performers and core talent are hard to reward adequately, while labor costs for long-tenured employees pile up regardless of productivity, leaving hiring and workforce deployment rigid. With a longer retirement age and population aging now converging, calls are growing to redesign pay around job value and performance.
Workers with 10 to 14 years of tenure earn 1.95 times as much as those with less than a year, according to a Ministry of Employment and Labor survey of employment conditions by contract type, obtained and analyzed by The Seoul Economic Daily on the 8th. The ratio rises to 2.28 times at 15 to 19 years and 3.08 times at 30 years or more. In Japan and several European countries, the gap does not exceed two times.
At the same time, job skills are reflected in pay less in Korea than elsewhere. The Korea Development Institute (KDI) analyzed the Organisation for Economic Co-operation and Development's Survey of Adult Skills and found that Korean workers whose numeracy or literacy scores were markedly above average earned only 2.46% and 2.01% more, respectively. In Germany the premiums were 14.14% and 12.58%, and in Japan 10.34% and 8.15%. Pay gaps tied to length of service are large, in other words, while differences in actual job skills translate into rewards far more weakly than in major economies.
The "N% bonuses" that large companies have paid out recently are also drawing criticism, with the seniority-based structure making the problem more visible. The practice does share corporate performance with workers, but like seniority pay it distributes money uniformly, without regard to individual or team contribution or job value, which can dilute the purpose of differentiated rewards.
Concerns on the ground run along similar lines. In a survey of 102 business executives and labor experts conducted by this newspaper, the biggest problem with seniority-based pay was identified as the obstacle it creates to moving and redeploying talent into strategic industries, cited by 21.2% of respondents. An executive at a mid-sized company said: "Companies set a rough ceiling on total labor costs, and because pay rises simply as years accumulate, it is hard to reward a young but capable employee more, and hard to bring in strong talent from outside."
Seniority pay is also weighing on new hiring and the labor market's dual structure. According to the labor ministry, 83.1% of unionized companies with 300 or more employees apply seniority pay, while 63.4% of workplaces with fewer than 100 employees have no formal pay system at all. Large firms with deeper pockets can absorb seniority-driven wage increases, but smaller companies cannot keep pace, which risks entrenching gaps by company size. As debate over extending the retirement age gathers momentum, overhauling seniority-centered pay has become more urgent still. Raising the statutory retirement age to 65 while leaving seniority pay untouched could sharply increase labor costs for older workers.
Experts therefore urge a shift toward setting base pay according to job value and differentiating additional rewards by individual and organizational performance. Hwang Jong-hwan, executive director of the human resources and organization division at Nemo Partners, said: "An important purpose of job-based pay is to offer competitive compensation for core jobs with high market value."
Cho Joon-mo, a professor of economics at Sungkyunkwan University, said: "Seniority pay reduces regular hiring of young workers and comes back to middle-aged and older workers as pressure to take voluntary retirement." He added: "It is worth considering writing into law a provision that would bar unilateral pay cuts while allowing a separate job-based pay system for new hires and those who switch voluntarily."
