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Salary Reform in South Korea and Japan
Pan Suk KimUnderwood Distinguished Professor
Yonsei University, South [email protected]
Contents
1. Introduction and Background
2. Korean System
3. Korean Performance-Related Pay
4. Japanese System
5. American System
6. Implications
Related Terms
Compensation
All the extrinsic rewards that employees receive in exchange for their work
C=base wage/salary + incentives + benefits
PayRefers only to the actual dollars employees receive in change for their work
WageHourly pay (see minimum wage)
SalaryWeekly, monthly, or annual pay that employees receive for their work
Incentives
Rewards offered in addition to the base wage of salary & usually directly related to performance
Benefits
Rewards employees receive as a result of their employment & position with the organization
5
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 : 1
Vertical Classification
Grade 6
Grade 7
Grade 8
Grade 9
Grade 5
Grade 4
Grade 3
Grade 2
Grade 1
Supporting
Officer
Deputy Director
Division Director
Director General
(DG)
Assistant Minister
SCS
* Open competitive exams: three written entrance exams (3 levels--Grades 9, 7, and 5)
Grading of the Korean Civil Service
Political Appointees (Ministers and
Deputy Ministers)
Career Civil Servants
SCS
Components of Employee Compensation
Salary Incentives Benefits
Monthly
Annual pay
Overtime pay
Bonus
Performance–related Pay
Paid vacation
Health insurance
Life insurance
Retirement
pension, etc.
History of Remuneration System Development
1948~1960s
• Enacted the State Public Officials Act(1949)
• Introduced the Senior Civil Service (SCS) system(Jul. 2006)
• 5 Grades → 9 Grades(1981)
• Introduced the performance-related pay system(1999)
1970s ~1990s
2000s• Simplified allowances: 32 → 30(Jan. 2011)
• Enacted the Presidential Decree on Public Officials Remuneration(1949)
• Introduced the annual salary system(1999)
• Enacted the Presidential Decree on Public Officials Allowance(1962)
Principles of Remuneration Determination
※ Article 46(1)-(3) (Principles of Determination on Remuneration)
of the State Public Officials Act
The complexity of duties & the degree of responsibility By grade
Price levels & standard living cost of general public
Appropriate balance with private enterprise wages
Balance between public officials in career & non-career service
Livelihood wage
ExternalBalance
Internal Balance
Proper
remuneration
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)
G-1 G-2 G-3 G-4 G-5 G-6 G-7 G-8 G-9Grade
Step
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
Salary Structure: Base Pay & Allowances
Preferential allowance, attendance allowance,
performance bonus
Family allowance, children school support allowance,
childcare leave allowance, house allowance
Special area, hazard work, special job duty
Allowances for overtime work, night shift,
holiday duty, management work, etc.
Base compensation paid according to pay schedule & service years
Meal, job position support, traditional holidays,
compensation on unused leaves
Base pay
Allowance(26 types)
Actual Expenses,
etc. (4 types)
Bonus(3 types)
Family support(4 types)
Special allowance(15 types)
Overtime work, etc.(4 types)
* Average ratio of salary(base pay) in total payment: 65%
Additional compensation paid according to working & living conditions
Annual Salary Table for Higher-level Officials with a performance appraisal system (2011)
Grade Max imum Min imum
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)
CategoryAnnual Salary
Category Annual Salary
President 179,094 Minister-level 102,097
Prime Minister 138,841
Minister of Legislation,Minister of Veterans
AffairsMinister of Trade
NegotiationPresident’s Chief of Staff
100,624
Chairman of the Board of
Audit and Inspection
105,040 Deputy Minister-level 99,153
(Unit : KRW 1,000, Annual Amount)
Procedure of Remuneration Adjustment
Annual survey of private sector wages
Establishment of a remuneration improvement plan (MOPAS)
Budget plan approval (National Assembly )
Revision of related laws
(MOPAS)
• Survey target: Office workers’ wages of private enterprises
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 increaserate of civil service wages
• Considering private enterprises wage hike rate, inflation,financial conditions, etc.
• Inter-ministerial consultations between MOPAS, MOSF, etc.• Reported to the president & referred to vice ministerial meeting,cabinet meeting
Inter-ministerial
consultations & decision of
draft government proposal
• Revision of the Presidential decrees on public officials remuneration & allowances
e.g. Change of salary tables, the amount and rate of allowances
Government’s ability to pay for personnel expense (Ceiling)
Cost of Living(Lower Limit)
Available Rangeof Salary Level
Social Balance(labor-management relations, collective bargaining power,role of government)
Social Balance(Salary level in
related industriesand institutions)
Determining Factors of Salary Level
YearIncrease in Base Pay
Ratio to Private Salaries
Rate of Increase in
Wages in the Private Sector
Rate of Increase in Consumer
Price
EconomicGrowth
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)
Public Servants’ Salary Index:
Ratio to Private Salaries
12.1
7.5
6.9
6.7 5.94.6
9.5
5.4
7.1
8.2
2.3
4.1
2.8
3.55%
10%
15%
3.6
2.8
2.2
2.5
4.7
2.9
90%
100%
2.8
-0.45
’00 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09 ’10
89.7
91.8
94.3
97.7
97.396.8
95.3
91.1
89.0 89.2
84.4
80%
Private wage increase rate
Inflation Ratio of public officials’ salaryto private salary
※ Criteria : Companies with over 100 full-time employees
• Public officials’ wage increase rate: 2.5%(2007~’08) → 0%(2009~’10) → 5.1%(2011)
• The ratio of public officials’ salaries to private sector salaries: 84.4%(2010)
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.
Performance Appraisal for Middle- and Lower-Level Officials
Appraisal Grade
Excell-ent
(Grade S)
Outstan-ding
(Grade A)
Normal
(Grade B)
Unsatis-factory
(Grade C)
Payment Scope
Top 20%
30% 40%Bottom
10%
Performance Pay Rate
15% 10% 6% 0%
Champion Mediocre
PRP Scheme for Senior Officials
PRP Scheme for Middle- and Lower-Level Officials
Appraisal
Grade
Excellent
(Grade S)
Outstan-
ding
(Grade A)
Normal
(Grade B)
Unsatis-
factory
(Grade C)
Payment
Scope
Top
20%
30%
(20%-
50%)
40%
(50%-
90%)
Bottom
10%
Performance
Bonus Rate
230%(of standard
base pay)
160% 90% 0%
Appraisal
Measurability
Participation Rewards
High
Low
Meaningful
Not Meaningful
Unfair Fair
Low High
Type A
Type D
Type B Type I
Type C
Strategies to Utilize PRP Schemes: Develop a Model Case
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.
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.
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.
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
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%
Challenges
In 2011, the Korean government plans to achieve 5 percent GDP growth and
maintain inflation rates under 3 percent.
It is needed to raise civil service wage over private wage increase rate.
Higher wages of public officials may pressure rising inflation.
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
People have higher expectations on the government’s efficiency and
civil servants’ competitiveness.
To strengthen performance-related incentives
• Expansion of the performance-related bonus scale, and increase in incentive gap
Legal Foundations? The role of the civil service act and related decrees?
Organizational Foundations? The role of the central personnelagency?
Resource Allocations? The role of the central finance agencyand its resource allocation for salary adjustment?
System Capacity? New system design and the role of propercompensation 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?
Lessons Learned