Public firms may face universal salary reductions

The government is likely to pressure state-run firms to make an across-board salary cut in the second half of the year as part of efforts to reform their wage system, government officials said yesterday.

Public companies and government-invested institutions are likely to adopt a so-called "wage peak system," an incremental salary cut for workers in return for job security after they reach a certain age, they said.

"As the plan for job cuts at public firms is at the final stage, we plan to overhaul the wage system as well," a government official was quoted by Yonhap News as saying.

"We will change the seniority-based compensation system to a merit-based one and adopt the wage peak system to readjust pay for existing employees," the official said.

The move came after heads of state-run corporations and institutions met at the Presidential Office of Cheong Wa Dae to report their restructuring plans to President Lee Myung-bak on Saturday.

At the meeting, participants mostly agreed that the current "low-risk, high-pay" wage system at public firms weakened the competitiveness of the public sector and distorted the employment market, according to the Finance Ministry.

The average annual salary at public companies is 53.3 million won ($39,430), 3.5 percent higher than their counterparts in the private sector, and 14 percent higher than the average wage of civil servants. There are 32 state-run firms in which the average salary exceeds 70 million won a year.

Critics have said that high salaries and good job security at public firms have been soaking up talented graduates, hurting the private sector`s employment market.

"The government plans to draw up a standard model for the merit-based wage system by the end of the first half, which would help reduce wages in the public sector," said Lee Seung-chul, director of system planning division at the Finance Ministry`s public entities policy bureau.

"But, the most important thing is that management and labor should come to an agreement about the wage cut. That will come down to each institution head`s ability," he said.

His comments hint that the government may put pressure on heads of public companies to draw an agreement with labor unions.

According to the government plan, 305 state-run firms are to shed 35,000 jobs by 2012.

As the first step to lower wages at public companies, the Finance Ministry had made 116 public firms reduce the annual average wage for new workers by an average 16 percent to 25 million won in February.

Since the inauguration in February last year, President Lee Myung-bak has vowed to downsize the public sector, which has been often criticized for squandering taxpayers` money.

By Kim Yoon-mi



(yoonmi@heraldm.com)