Unionized workers at Kumho Tire Co., South Korea's second-biggest tire maker, began their first all-out strike in three years on Monday after they failed to agree with the management on adopting a wage peak system.

Workers at Kumho Tire's three production facilities, including the one in Gwangju, 329 kilometers south of Seoul, started an eight-hour strike at 6:30 a.m., industry sources said.

The management has been making efforts to adopt the wage peak system ahead of the extension of the retirement age, while the labor union refuses to follow the new policy.

A wage peak system allows employees to accept a reduced salary in exchange for working until the retirement age set by the company.

The management proposed a 3 million won ($2,537) one-off bonus and a one-year extension of retirement age on condition that the wage peak system is adopted.

Unionized workers, meanwhile, demand an 8.3 percent salary hike, along with allocation of performance-based pay for 2014 without any strings attached. They said that the wage peak system is a "separate issue" from wage negotiations.

Also at issue is how to compensate the employees for a cut in salary and bonuses that they endured as the company was under a yearslong debt workout program.

Kumho Tire had been under oversight since December 2009 after its parent conglomerate, Kumho Asiana Group, suffered a severe liquidity crunch from the purchase of Daewoo Engineering and Construction Co.

The company graduated from the workout program late last year, during which employees had their basic salaries cut and returned bonuses as part of efforts to help the company's normalization.

The management proposed giving back some of the wages that were cut, an offer that the labor union sees as "insufficient." It claims that the workers' actual salaries were cut by as much as 40 to 50 percent during the period.

This comes after a partial strike that lasted for four days last week as they were at odds over the new wage system. The last time that they held a full-day strike was in August 2012.

The latest work stoppage at the Kumho Tire facilities could affect other local companies, including Kia Motors Corp., whose production lines are located in Gwangju.

Some estimate the walkout could cause about 5 billion won ($4.3 million) in daily lost sales for Kumho Tire. Worries are growing that a protracted labor dispute could aggravate its already challenging business situation.

During the first quarter, Kumho Tire saw its sales drop 12 percent on-year to 754.4 billion won, with operating profit plunging 49 percent to 44 billion won.

Shares of Kumho Tire closed down 1.36 percent from the previous trading session at 6,530 won on the Seoul bourse. (Yonhap)