Salary Reform in South Korea
and Japan
Pan Suk Kim
Underwood Distinguished Professor
Yonsei University, South Korea
[email protected]
Contents
1. Introduction and Background
2. Korean System
3. Korean Performance-Related Pay
4. Japanese System
5. American System
6. Implications
1. Introduction & Background
Related Terms
Compensation
Pay
Wage
Salary
Incentives
Benefits
All the extrinsic rewards that employees receive in
exchange for their work
C=base wage/salary + incentives + benefits
Refers only to the actual dollars employees receive in
change for their work
Hourly pay (see minimum wage)
Weekly, monthly, or annual pay that employees receive
for their work
Rewards offered in addition to the base wage of salary
& usually directly related to performance
Rewards employees receive as a result of their
employment & position with the organization
Government Workforce
in the Executive Branch
as of December 31, 2010
• Total Employees in the Executive Branch:
955,890
• Number of Central Government Employees: 612,672 (64%)
including General Service(95,794), Teachers(350,383), law
enforcement(135,204), and Postal Service(31,291)
(Women: 46.1% in the national government; Grade 5 or above: 10.8%)
• Number of Local Government Employees:
343,218 (36%)
• Total Population: 49 million (2010)
• Ratio of Population/Gov’t Employees = 51 : 15
Grading of the Korean Civil Service
Vertical Classification
Grade 1
Assistant Minister
Grade 2
Director General
Grade 3
(DG)
Grade 4
Division Director
Grade 5
Deputy Director
Political Appointees
(Ministers and
Deputy Ministers)
SCS
SCS
Career
Civil
Servants
Grade 6
Grade 7
Supporting
Grade 8
Officer
Grade 9
* Open competitive exams: three written entrance exams (3 levels--Grades 9, 7, and 5)
Components of Employee Compensation
Salary
Incentives
Monthly
Bonus
Annual pay
Performance–
related Pay
Overtime pay
Benefits
Paid vacation
Health
insurance
Life insurance
Retirement
pension, etc.
Ministry of Public Administration and
Security (MOPAS)
2. Korean System
History of Remuneration System Development
• Enacted the State Public Officials Act(1949)
1948
~1960s
• Enacted the Presidential Decree on Public Officials Remuneration(1949)
• Enacted the Presidential Decree on Public Officials Allowance(1962)
• 5 Grades → 9 Grades(1981)
1970s
~1990s
• Introduced the annual salary system(1999)
• Introduced the performance-related pay system(1999)
• Introduced the Senior Civil Service (SCS) system(Jul. 2006)
2000s
• Simplified allowances: 32 → 30(Jan. 2011)
Principles of Remuneration Determination
The complexity of duties &
the degree of responsibility
By grade
Price levels & standard living cost
of general public
Livelihood
wage
Proper
remuneration
Appropriate balance with private
enterprise wages
Balance between public officials
in career & non-career service
External
Balance
Internal
Balance
※ Article 46(1)-(3) (Principles of Determination on Remuneration)
of the State Public Officials Act
Salary Structure
•Monthly Salary = Base Pay + Allowances (30
kinds)
•On average: Base Pay (65%): Allowances (35%)
•12 different salary schedules: general, legal,
technical services; law enforcement, research,
development; police, firefighters; teachers,
professors; military Service; and labor
•30 different allowances: family allowance,
special locality allowance, special task
allowance, overtime allowance, bonus, etc.
Fringe Benefits
• General benefits
–
–
–
–
–
Benefits for dependents
Retirement insurance
Unemployment insurance
Medical insurance
Disability benefits
• Pay for not worked
– Sick leave, holidays, vacation, military leave,
etc.
• Employee services
– Tuition reimbursement, wellness programs,
etc.
Korea: Base Pay of the General Service
(monthly base pay; Korean Won in 2011)
Grade
G-1
G-2
G-3
G-4
G-5
G-6
G-7
G-8
G-9
1
3,065,400
2,759,700
2,489,700
2,133,800
1,907,000
1,573,200
1,411,700
1,258,700 1,119,400
2
3,172,800
2,862,100
2,581,900
2,221,000
1,984,100
1,646,300
1,476,100
1,319,800 1,176,800
3
3,283,100
2,965,600
2,676,600
2,309,500
2,063,900
1,721,800
1,544,200
1,384,300 1,237,600
4
3,395,700
3,070,600
2,772,300
2,400,200
2,147,000
1,799,000
1,616,000
1,449,900 1,302,000
5
3,511,100
3,176,600
2,869,300
2,492,100
2,232,400
1,878,400
1,690,100
1,518,500 1,367,100
6
3,627,900
3,283,000
2,967,500
2,584,800
2,319,400
1,960,100
1,766,100
1,588,500 1,433,700
7
3,746,400
3,390,700
3,066,700
2,678,400
2,407,900
2,041,800
1,842,800
1,659,000 1,497,300
8
3,866,100
3,498,400
3,166,100
2,772,600
2,497,500
2,124,000
1,919,700
1,726,500 1,558,700
9
3,987,100
3,606,600
3,266,400
2,866,800
2,587,200
2,206,400
1,992,900
1,791,000 1,617,500
10
4,109,000
3,715,000
3,366,700
2,961,100
2,677,700
2,283,700
2,062,800
1,852,000 1,674,000
11
4,230,700
3,823,700
3,467,000
3,056,200
2,761,900
2,357,000
2,128,700
1,911,000 1,727,900
12
4,356,400
3,936,100
3,571,200
3,145,700
2,843,400
2,429,100
2,193,500
1,968,800 1,781,500
13
4,482,900
4,049,300
3,668,000
3,229,500
2,920,800
2,497,000
2,255,000
2,024,300 1,832,800
14
4,609,800
4,151,600
3,757,700
3,307,600
2,992,900
2,561,100
2,313,900
2,077,200 1,882,700
15
4,720,500
4,246,200
3,840,400
3,381,100
3,061,000
2,622,700
2,369,900
2,128,100 1,930,400
16
4,818,900
4,332,800
3,917,700
3,450,400
3,125,200
2,680,400
2,423,200
2,177,200 1,976,700
17
4,906,100
4,412,500
3,989,300
3,514,700
3,185,400
2,735,400
2,474,300
2,223,100 2,021,700
18
4,983,900
4,485,300
4,056,000
3,575,100
3,242,500
2,787,600
2,523,000
2,267,600 2,063,800
19
5,053,400
4,552,500
4,117,800
3,631,200
3,296,000
2,836,900
2,568,800
2,310,300 2,105,000
20
5,115,900
4,614,000
4,175,300
3,683,700
3,346,200
2,883,500
2,612,600
2,351,000 2,144,400
Step
Salary Structure: Base Pay & Allowances
Base pay
Allowance
(26 types)
Base compensation paid according to pay schedule & service years
Additional compensation paid according to working & living conditions
Bonus(3 types)
Preferential allowance, attendance allowance,
performance bonus
Family support
(4 types)
Family allowance, children school support allowance,
childcare leave allowance, house allowance
Special allowance
(15 types)
Special area, hazard work, special job duty
Overtime work, etc.
(4 types)
Allowances for overtime work, night shift,
holiday duty, management work, etc.
Actual Expenses,
etc. (4 types)
Meal, job position support, traditional holidays,
compensation on unused leaves
* Average ratio of salary(base pay) in total payment: 65%
Annual Salary Table for Higher-level Officials
with a performance appraisal system (2011)
Grade
Maximum
Minimum
Grade-1
89,271,000
59,507,000
Grade-2
82,505,000
54,975.000
Grade-3
76,700,000
51,524.000
Grade-4
70,166,000
40,781,000
Politicians and Political Appointees: Annual
Salary System Based on Fixed Pay (2011)
(Unit : KRW 1,000, Annual Amount)
Category
Annual
Salary
Category
Annual Salary
President
179,094
Minister-level
102,097
138,841
Minister of Legislation,
Minister of Veterans
Affairs
Minister of Trade
Negotiation
President’s Chief of Staff
100,624
105,040
Deputy Minister-level
99,153
Prime Minister
Chairman of
the Board of
Audit and
Inspection
Procedure of Remuneration Adjustment
• Survey target: Office workers’ wages of private enterprises
Annual survey of private
sector wages
Establishment of a
remuneration improvement
plan (MOPAS)
Inter-ministerial
consultations & decision of
draft government proposal
with 100 employees or more
•Source: “Survey on Labor Conditions by Employment Type”
(Ministry of Employment and Labor)
• Survey cycle: once a year
• Reviewed by the public-private remuneration deliberative
committee
-Committee members: Representatives of private businesses,
academia, public officials’ organizations, etc.
- Functions: Providing reviews & advice on appropriate increase
rate of civil service wages
• Considering private enterprises wage hike rate, inflation,
Budget plan approval
(National Assembly )
financial conditions, etc.
• Inter-ministerial consultations between MOPAS, MOSF, etc.
• Reported to the president & referred to vice ministerial meeting,
cabinet meeting
• Revision of the Presidential decrees on public officials
Revision of related laws
(MOPAS)
remuneration & allowances
e.g. Change of salary tables, the amount and rate of allowances
Determining Factors of
Salary Level
Government’s ability to pay for
personnel expense (Ceiling)
Social Balance
(labor-management
relations, collective
bargaining power,
role of government)
Available Range
of Salary Level
Social Balance
(Salary level in
related industries
and institutions)
Cost of Living(Lower Limit)
Public Servants’ Salary Index:
Ratio to
Private
Salaries
Rate of
Increase in
Wages in the
Private Sector
Rate of
Increase in
Consumer
Price
Economic
Growth
Year
Increase in
Base Pay
1996
9.0 (5)
4.9
7.0
1997
5.7 (5)
4.4
4.7
1998
-4.1 (0)
7.5
-6.9
1999
-0.9 (0)
0.8
9.5
2000
9.7 (3)
88.4 (91.1)
9.9
2.3
8.8
2001
7.9 (5.5)
93.1 (95.3)
6.4
4.1
4.0
2002
7.8 (8.5)
94.8 (96.8)
7.6
2.8
7.2
2003
6.5 (3)
95.5 (97.3)
8.4
3.5
2.8
2004
3.9 (3)
95.9 (97.7)
6.7
3.6
4.6
2005
1.3 (0)
93.1 (94.3)
7.2
2.8
4.0
2006
2.0 (1.8)
91.8 (Same)
6.1
2.2
5.2
2007
2.5 (1.6)
89.7 (Same)
4.1
2.5
5.1
2008
2.5 (1.8)
89.0 (Same)
5.6
4.7
2.3
2009
0.0 (0.0)
89.2
-0.5
2.8
0.2
2010
0.0 (0.0)
84.4
4.9
2.9
6.1
2011
5.1 (6.5)
Ratio to Private Salaries
Inflation
Private wage
increase rate
Ratio of public officials’ salary
to private salary
97.7
15%
95.3
12.1
100%
97.3
96.8
94.3
91.8
91.1
89.7
9.5
10%
7.5
7.1
90%
89.2
89.0
8.2
84.4
6.9
6.7
5.4
5.9
4.6
4.7
5%
4.1
80%
3.6
3.5
2.8
2.8
2.5
2.3
2.9
2.8
2.2
-0.45
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
• The ratio of public officials’ salaries to private sector salaries: 84.4%(2010)
※ Criteria : Companies with over 100 full-time employees
• Public officials’ wage increase rate: 2.5%(2007~’08) → 0%(2009~’10) → 5.1%(2011)
3. Korean PerformanceRelated Pay
Performance Agreement for Senior Officials
Performance Appraisal for
Middle- and Lower-Level Officials
Typical performance appraisal system (based
on check list or rating scale) could be based on
the following major areas:
(1) job performance in terms of timeliness,
completeness, job difficulties, etc.
(2) job-fulfilling abilities or core competencies
in terms of planning, communication,
cooperation, innovation, citizen-orientation,
etc.
(3) values, attitudes, etc.
PRP Scheme for Senior Officials
Appraisal
Grade
Payment
Scope
Performance
Pay Rate
Excell- Outstan
Normal
ent
-ding
(Grade
S)
Top
20%
15%
Champion
Unsatisfactory
(Grade
A)
(Grade B) (Grade C)
30%
40%
Bottom
10%
10%
6%
0%
Mediocre
PRP Scheme for Middle- and
Lower-Level Officials
Appraisal
Grade
Excellent
(Grade S)
Payment
Scope
Top
20%
Performance
Bonus Rate
230%
(of standard
base pay)
OutstanUnsatisNormal
ding
factory
(Grade B)
(Grade A)
(Grade C)
30%
(20%50%)
40%
(50%90%)
Bottom
10%
160%
90%
0%
Strategies to Utilize PRP Schemes:
Develop a Model Case
Appraisal
Unfair
Fair
High
Meaningful
Type B
Type I
Type D
Participation
Type A
Rewards
Type C
Low
Low
Measurability
Not
Meaningful
High
4. Japanese System
National Personnel Agency (NPA)
The Remuneration Bureau is in charge of the duties on the Recommendations and
establishes standards to determine salary and allowances. The bureau also studies
employment and remuneration measures for aged public employees.
Basic Principles of the Japanese
Remuneration System
Remunerations of national public employees is required to meet the general
conditions of society.
The NPA makes the remuneration recommendations in principle to adjust the
remuneration level of national public employees to that of the private sector
employees (Principle of following the Private Sector).
Remunerations of national public employees are determined basically in
accordance with the types of their duties and their responsibilities.
There are 17 salary schedules divided in accordance with the types of
employee jobs (Administrative Service, Public Security Service, Medical Service,
etc.); one of these schedules is applied to each national public employee.
Each salary schedule has several grades divided in accordance with the
degrees of difficulty and responsibility of duties (Officer, Unit Chief, Division
Director , etc.)
In the remunerations system of national public employees, pay grade increases
and pay step increases shall be determined based on actual work performance
and their abilities, and diligence allowances (bonus shall also be paid in
accordance with their work performance.
Japanese Salary Structure
Japan: Salary Table –
Administrative Service
Japan’s Remuneration
Recommendation by NPA
The NPA Remuneration Recommendation as a compensatory
measure for the denial of labor rights has a function to ensure
appropriate remuneration of national public employees that is
adapted to general social conditions.
The Recommendation is made on the basis of balancing the
remuneration level of national public employees with the
remuneration level of employees of private enterprises (the
principle of following the private sector).
The NPA is endeavoring to appropriately carry out its
responsibilities for decisions regarding remunerations and other
working conditions of public employees by making
recommendations to the Diet and the Cabinet regarding basic
mattes to be designated by laws and regulations and
establishing or abolishing NPA Rules based on the statutory
delegation of authority regarding concrete standards.
Japan: NPA Remuneration
Recommendation in 2010
Both monthly salaries and bonuses shall be reduced. Average
annual remuneration shall be reduced by 94,000 yen (1.5%).
(Principally, monthly salaries for employees in their late fifties shall
be reduced.)
① Monthly remuneration shall be reduced in order to eliminate the
negative public-private differential (the public sector remuneration
exceeds that of the private sector by 0.19%).
－There will be a reduction of salary and managerial allowance by
a fixed rate for employees older than 55 years of age, and
reduction of salary schedules.
② The End-of term and Diligence Allowances (“bonus”) shall be
reduced by 0.2 months of salary.
Japan: Remuneration Survey
Japan: Remuneration Recommendation
Japan: Base Pay and Allowances
Base Pay (83%)
Base Pay (82%)
Allowances (17%)
Allowances (18%)
Japanese Government Struggling
on Public Wage Cuts
The Yomiuri Shimbun (Daily Newspaper on October 6, 2011)
The government has been under pressure to make a difficult decision over
salary cuts for national public employees for fiscal 2011.
The National Personnel Authority said salaries should be cut an average of
0.23 percent in its annual recommendation last Friday.
However, the government has already submitted a bill to cut total personnel
costs 7.8 percent through fiscal 2013 to the Diet to squeeze out revenues for
reconstruction efforts following the March 11 Great East Japan Earthquake.
While the National Personnel Authority insisted its recommendation be carried
out, the Democratic Party of Japan and the Japanese Trade Union
Confederation (Rengo) support the salary cut bill for public employees.
There is sharp focus on how Prime Minister Yoshihiko Noda will exercise his
leadership in dealing with the two proposals.
5. American System
Salary Table of the American Federal Government in
2011:General Schedule (GS) 1-15
American SES and
Executive Schedule in 2011
Structure of the
SES Pay System
Minimum
Maximum
Agencies with a Certified SES
Performance Appraisal System
119554
179700
Executive Schedule Level I
199700
Executive Schedule Level II
179700
Executive Schedule Level III
165300
Executive Schedule Level IV
155500
Executive Schedule Level V
145700
Annual Salary of Politicians in the US
• US President = USD 400,000 per year
(+ 50,000 expense allowance; before 2001, it was 200,000 since 1969)
The president earns a $400,000 annual salary, along with a $50,000 annual
expense account, a $100,000 nontaxable travel account and $19,000 for
entertainment
• Vice President = $230,700
•Chief Justice, US Supreme Court = $223,500
•Speaker of the House = $223,500
•Senator/Representative = $174,000
(Majority/Minority Leaders: $193,400)
•President’s Chief of Staff = $172,200
6. Implications and Lessons
Learned
4.1 Possible Increase in Public Officials’ Remuneration
Policy goal
Public service wage needs to maintain appropriate balance with private enterprise wages.
* Private enterprise wage > civil service wage * Ratio to private salaries in 2010: 84.4%
It is needed to raise civil service wage over private wage increase rate.
Challenges
In 2011, the Korean government plans to achieve 5 percent GDP growth and
maintain inflation rates under 3 percent.
Higher wages of public officials may pressure rising inflation.
People have higher expectations on the government’s efficiency and
civil servants’ competitiveness.
Future Plans
To raise civil service remunerations in the level of the minimum inflation
without declining real income
• Running of the remuneration review committee participated by academia,
economic organization, etc., and consultation with related agencies
To strengthen performance-related incentives
• Expansion of the performance-related bonus scale, and increase in incentive gap
Lessons Learned
 Legal Foundations? The role of the civil service act and
related decrees?
 Organizational Foundations? The role of the central personnel
agency?
 Resource Allocations? The role of the central finance agency
and its resource allocation for salary adjustment?
 System Capacity? New system design and the role of proper
compensation systems?
 Salary reform tools? The utility of “remuneration survey”
used in China, Japan and Korea?
 Political and public support for salary reform?
 Leadership commitment and policy marketing?