‘Human Resource Management Practices in

South Korea’

Introduction

The Human Resource policy has changed a great deal in South Korea after the financial crisis
began in late 1990’s. The Human Resource Policy has changed towards the Performance Based
HRM policy which is more likely in contrast with the traditional seniority based HRM policy
where job security is emphasized and remuneration, promotion and other policies depend on the
basis of seniority. The term Performance Based Practices is originated from the so called notion
of “Best Practice” of U.S companies which they claim to have now. Under the notion of Best
Practice, there is one universal HR practice that can be applied to different situations which we
will discuss in the later part of this paper. According to a recent research on 100 top companies
in South Korea, 45.2 percent of the companies are using Merit Based compensation practice
which gives the sign that the traditional approaches of human resource policies in South Korea is
changing towards the performance and merit of the employees.

In the past, low wages and long working hours made Korea the ideal location for labor-intensive
businesses. South Korea’s labor force maintains a reputation for high quality, productivity, and
level of education. Furthermore, compared to other industrialized countries like the United
States, Japan and Germany, Korean wages are still considered relatively low, considering the
productivity of Korean labor. However, labor-intensive jobs are now moving offshore,
particularly to Southeast Asia, as wages in Korea continue to rise in accordance with the
country’s economic growth. In fact, with unemployment at a low of 2% and Koreans tending to
avoid the 3D (dirty, dangerous, difficult) jobs, the economy has experienced some labor
shortages in manufacturing. In 1991, the Labor Ministry estimated nationwide shortages of
220,000 production workers and 30,000 technical workers. To help alleviate this problem, the
government introduced a program in 1994 to allow foreigners into the country to work for one to
two years. It was estimated that approximately 90,000 legal and illegal foreign workers worked
in Korea in 1994 alone.
In absence of natural resources, South Korea’s strong labor force has served as the foundation of
its modern economic development. In 2010, South Korea’s civilian labor force totaled 20.4
million. The labor force is growing at an annual rate of 2.7%, three times as fast as Korea’s
population growth rate of 0.9%. Unemployment in previous years has been as low as 2% with
some labor shortages in the manufacturing sector. In 2010, 14% of South Korea’s workforce was
employed in agriculture, 24% in industry, and 62% in service jobs.

South Korea’s industrialization has caused a striking decline in agriculture and unemployment.
Approximately 14% of the labor force today is engaged in agriculture, compared with 63% in
1963. Employment in agriculture continues to shrink by more than 6% per year, while 7% annual
growth has prevailed in the service sector.

Background Information of South Korea

Features Figure

100,210 km2  (109th in the world)

Total Land
38,691 sq mi 

Total Population 49,000,000 (25th in the world)

Population Increase -0.01%

Humid continental climate and humid

Climate
subtropical climate

GDP (Growth) 3.6% (2011 est.)

GDP per Capita $32,100 (2011 est.)

Inflation Rate 4% (2011 est.)

Core Export Items (Last 5 Year) semiconductors, wireless telecommunications

equipment, motor vehicles, computers, steel,

 ships, petrochemicals

Total Export to Foreign Country $556.5 billion (2011 est.)

machinery, electronics and electronic

Core Import Items (Last 5 Year) equipment, oil, steel, transport equipment,

organic chemicals, plastics

Total Employees 25.1 million (2011 est.)

Unemployment Rate 3.4% (2011 est.)

Foreign Investment USD15 billion

Total Foreign Employees 14,397

Number of Foreign Companies 23,458

Foreign Investment (Last 5 Years) USD5 BILLION

In three decades, South Korea has transformed itself from a destitute, war-torn, agricultural
country, to a modern, industrialized nation at the threshold of joining the Organization of
Economic Cooperation and Development (OECD). In 1964, the average worker in Korea earned
only US$100 per year, less than the average Indian laborer. Koreas per capita GDP of
US$23,749 in 2010. Korea is the world’s 12th largest economy and the United States seventh
largest trading partner. Furthermore, with a growth rate of 8.4% in 2010, the Korean economy
continues to expand and grow in importance in the areas of global trade and manufacturing.
South Korea is also the world’s largest manufacturer of DRAMS (Direct Random Access
Memory chips), the world’s second largest ship builder and its fourth largest electronics maker.

Rapid economic growth has triggered fundamental changes in the South Korean lifestyle. In little
more than twenty years, the percentage of the population living in urban areas has grown more
than double from 41% in 1970 to 90% in 2010 of the total population of 5 million in South
Korea. Seoul -- the political, financial and cultural center of Korea -- is home to approximately
30% of Korea’s total population. In total, more than 50% of Korea’s inhabitants live in Koreas
six major cities: Seoul, Pusan, Taegu, Inchon, Kwangju, and Taejon which we can see from the
population distribution of the major cities of South Korea:

Serial City Name Population (In Million)

1 Seoul 9.79
2 Busan 3.41
3 Yongin 0.85
4 Incheon 2.66
5 Bucheon 0.85
6 Daegu 2.44
7 Ansan 0.72
8 Daejeon 1.50
9 Cheongju 0.66
10 Gwangju 1.47
11 Jeonju 0.64
12 Ulsan 1.08
13 Anyang 0.60
14 Suwon 1.07
15 Cheonan 0.57
16 Changwon 1.05
17 Namiangju 0.52
18 Seongnam 0.95
19 Pohang 0.51

Chart 1: The Population Distribution of the Major Cities of South Korea.

External Factors Affecting Human Resource Practices in

South Korea

Rapid economic growth has allowed most South Koreans to become significantly more affluent.
Real expenditure by households rose by almost 80% between 1990 and 2010, with the largest
rise in spending on transport and communications.

Once known as the Hermit Kingdom, South Korea has postured itself to become a full-fledged
member of the international economy. Foreign investment almost doubled as South Korea
pursues its membership in the OECD, the country is expected to become even more open to
foreign business ventures within its borders.

Labor Laws & Labor Unions

Almost every aspect of labor relations in Korea has been codified into statutes and regulations. In
principle, provisions of these laws are mandatory; thereby violation may be punishable by fines
and sometimes imprisonment. Traditionally, however, domestic employers have not adhered to
all labor law requirements. Enforcement of labor laws has been, and continues to be, hampered
by a shortage of funding and qualified personnel. An outline of labor laws that are in action in
South Korea are as follows:

1) Labor Standards Act

2) Labor Union Act

3) Labor Disputes Adjustment Act:

4) Labor Management Council Act

5) Labor Committee Act

6) Minimum Wage Act

7) Employment Security Act

8) Basic Act for Vocational Training

9) National Pension Fund Act

10) Medical Insurance Act

11) Industrial Accident Compensation Insurance Act

12) Industrial Safety and Health Act

13) Gender Equal Employment Act

14) Act for Honorable Treatment of Patriots and Veterans

As Koreas labor policies may be an issue for OECD admission, President Kim Young Sam
promised labor reform in the country on April 24, 1996. He declared: The excessively restrictive
laws and institutions of the past must be revised in a way compatible with international standards
and practices.

The Korean constitution, like those of many other countries after the OECD admission,
guarantees the right of employees to form and join labor unions and bargain collectively. Unions
may be established in various forms including company, craft and regional unions, but company
unions remain the most common.

Technology

South Korea has one of the world’s most active telecommunications and Information
Technology markets backed by strong support from the government. Spending on ICT and high-
technology equipment helped lead a transformation of the economy to one that is more
progressively knowledge based. Having invested significantly in ‘basic’ telecommunications
infrastructure over past decades, the country has well developed submarine cable and satellite
infrastructure as well as solid internet resources to support the growing demand for national and
international communications. The government aims to transform the country into a knowledge-
based information society in a ‘smart-age’. 

The South Korean Government is committed to transitioning the country to digital terrestrial,
digital cable and digital satellite TV broadcasting by 2012. The pressure created by convergence
had South Korea rewrite its regulatory arrangements for the broadcasting and communications
sector. The operators continue to invest heavily in fiber based broadband deployments and IPTV
subscriptions have passed the 5 million mark as more content is available and the operators are
able to compete more effectively with their own live broadcasts. 
South Korea continues to be a booming mobile market as it innovatively explores the options for
value-added services. The market neared the 110% penetration rate mark into 2012 with many
individuals carrying at least one mobile phone. Having launched 3G networks in 2003, these
accounted for over 85% of all subscriptions. New investments are intended to drive revenue and
gain market share and the year has seen strong growth in LTE after launching in 2011 and a
rapid increase in smart phone adoption. Over one million DMB phones have been sold and the
three major wireless communications providers SK Telecom, KT, and LG U+ provide coverage
in all major cities and other areas. South Korea has the second fastest Internet download speeds
in the world, with an average download speed of 32.45 Mbit/s.

Socio Political Issues

Diversity among ethnic groups in the republic may cause tension as the majority of the
population is Korean, and the minority is migrant workers from China, the Philippines and
Malaysia and about 37,000 US military personnel. Remembering the Korean War and relatives
who lost their lives may strike fury in the hearts of America military in the republic. Sexual
exploitation of its women is a social problem of the Republic of Korea. Women from Russia, the
People's Republic of China, the Philippines, and Thailand are also trafficked to South Korea for
commercial sexual exploitation. Korean women are sent to Japan and the United States as
modern-day slaves in the field of prostitution. In 2004, the republic's government passed anti-
trafficking and anti-prostitution laws and social, legal and medical support for victims. A
problem that faces many children in the republic is food shortages and lack of quality in health
care. UNICEF is currently working on problems such as: treating malnourished children;
preventing micro-nutrient deficiencies among children and pregnant (or lactating) women;
immunizing children and pregnant women; supporting water supply and purification; and
promoting early childhood development at the household level.

Business Environment

The Korean company functions as more than merely a workplace; rather, it acts like a second
family. Employers feel a sense of responsibility and caring for their workers and try to ensure
that the basic needs of the employee’s family are met. Employers may act as matchmakers or
even perform wedding ceremonies for their employees. In turn, Korean employees are expected
to dedicate themselves not only to their work, but also to the success and the well being of their
company. While there is no guarantee of lifetime employment, Koreans generally do not approve
of job-hopping.

Employees are indoctrinated through extensive initial orientation programs that last from two to
five months and include learning the company song, philosophy, protocols, values and mission.
While practical skills are also taught, the training emphasizes the importance of dedication,
loyalty, team and spirit. The general consensus in Korea is that a dedicated employee can always
learn job skills, and thus loyalty, teamwork, and commitment to the corporate philosophy should
function as the priorities of the training. Company sports events, recreational outings, group
eating and drinking also contribute to the spirit of belonging.

Koreans also constantly try to change work methods to improve overall productivity. Lee Kun
Hee, chairman and principal owner of Koreas leading industrial conglomerate, the Samsung
Group, has a personal motto: change everything except your wife and children. In a country
where hierarchy is important, one of Lees main efforts has been an attempt to change the process
by which business operations must be directed through a chain of command that begins with a
companys senior executives. Lee has delegated more authority to group company heads,
encouraged subordinates to speak freely to their bosses, and introduced a new degree of
informality at meetings with group company presidents. While Confucian ways may be deeply
ingrained in their country, some Koreans realize that the greater internationalization of their
economy will require them to change their ways to meet new challenges.

Internal Factors Affecting Human Resource Practices in

South Korea

The Korean management style is similar to the much better known Japanese approach, although
experts say the Koreans are often more willing to blend their techniques with American methods.
Korean management aims to foster a family atmosphere in which employees interact freely with
executives and share a strong commitment to the company`s success. The main characteristic of
Korean management is the close relation of the companies with the government which was
copied from the Japanese. The chaebol structure was also applied from the Japanese Zaibatsu
model. The Koreans then to be more individualistic and their culture, despite stressing the
concept of group harmony, it does no include the loyalty and consensus found in Japan. The
family business in Korea is a very strong figure based in blood lines.

The main factors regarding South Korean management is given below:

Strategic Goals: Emphasize in market share and profit maximization, even more then the
Japanese do, when they start to grow and internationalize.

Environmental Analysis: Less active monitoring the substitutes than Japanese when the Korean
company is large, but as they internationalize they become as active as the Japanese.

Technology development and manufacturing: As they grow they emphasize on technology

and are very important to develop economies of scale.

Supplier Relationship: As they grow and internationalize tend to be more Japanese-like.

Closeness with customers: They tend to have a weak convergence with the Japanese but it gets
stronger as they internationalize.

Marketing: No significant difference is presented. But as the Koran Company internationalizes

it converges.

Human resource Management: As they become more internationalized they are forced to
converge to the Japanese style.

International Orientation: Convergence is presented when the firms grow and/or

internationalize.

The main thing is that both internationalization and growth are driving forces for the Korean
firms to converge to the Japanese models. Being internationalization the main driving force,
mainly because the Korean firms have to face the same international competition as their
Japanese counterparts, thus facilitating the implementation of similar managerial structures.

Government business relation with business sector

The government business relation is the detrimental factor that has been one of the success factor
for most of the business industries of South Korea. Government’s protection policy of the small
business and industries from foreign competition as well as local competition has submerged the
economy as one of the strongest economy of the world. The government initiatives for the
welfare of the business growth of the country are

1) The business and government relation is one of the most flexible and strongest in the world
like in Japan who gives heavy emphasis on the local production and industries.
2) Expenditures on education represent more than 19% of all government spending and the
Korean government employs more people with doctoral degrees than any other country.
More than 90% of students continue beyond secondary schools to attend universities or
vocational training institutions. That ensures a talented pull of candidates for the companies
to look for in the future.
3) Government funds and bank loans have been easily channeled to the medium firms and
industries so that they can get the financial assistance at a lower rate as possible.
4) Labor force movement has been also suppressed by the state by ensuring adequate and
satisfactory compensation and strong labor policy that has created local satisfied pull of
employees who are willing to work in the local, foreign owned local firms and contribute in
the profit of the companies as well as the strengthening of the country’s GDP.
5) The declining work hours is the result of the Government’s proactive policy of lower
working works in order to increase more leisure and relaxation time at all level of work. The
Government has set up 40 hours of work per week 5 days a week for companies with more
than 1000 employees in 2004. The policy extended for companies with more than 300
employees in 2005 and companies with more than 100 employees in 2006 and for the labors
of the whole nation in 2008. The policy is in contrast with working hour policy of Japan who
believes in working late hours and work until perfection. Though the recent concern of
MHLW has issued draft for changes in this policy.
 Human Resource Policies of South Korea

Recruiting & Selecting Employees

Recruitment trend in South Korea:

Most large Korean companies recruit white collar personnel directly from colleges and
universities through open screening exams offered en masse once or twice a year. The current
ratio between applicants and job offerings is about 10:1. In 2010, 76.8% of college graduates
hired by the 50 largest business groups in Korea were recruited through these mass
examinations. Another 21% were recruited through referrals and recommendations.

Creating a local presence is often essential to ensure a comfortable working relationship that can
withstand occasional bouts of anti-foreigner sentiment that develop in the country. Many foreign
firms do this successfully by including some Koreans in management, designing country-specific
policies and procedures, and working to improve the company’s long-term image.

In seeking to recruit qualified Korean employees, foreign companies have found that they must
offer salary and benefits packages better than those provided by Korean employers. However, as
the pay and working conditions of domestic companies improve, foreign employers must also
offer additional incentives, including greater opportunities for advancement.

Hiring expatriates to work in Korea is an alternative for foreign companies who prefer not to rely
solely on Korean employees. Expatriates, however, generally require significantly more benefits
than locals, which dramatically increase the cost of hiring expatriates. However, expatriates are
not taxed on housing costs and expatriate service premium, provided these do not exceed 20% of
their pay. In principle, the Korean government tries to restrict employment of expatriates in
Korean firms to positions for which no qualified national is available. Thus, most expatriates
work either as managers in foreign companies or joint ventures or as highly skilled specialists in
Korean firms. Generally, expatriates are admitted to a country on the basis of prearranged
employment under the control of the Justice and Labor Ministries.

What South Korean Companies looking for in a candidate:

The Korean employers are looking for two criteria while they are going for any recruiting
process in an employee-

 World’s or at least Korea’s best field specific knowledge, expertise and skills
 Flexibility, adaptability and ability to think and communicate as appropriate

The first point is quite self explanatory because every company is always looking for the best
pool of candidates with the best knowledge, skill and expertise as appropriate for the position to
be filled in. The second point explains the relevance with the globalization policy of Korean
companies. The globalization policy of Korea s primarily is focused on increasing exports but
that doesn’t necessarily mean that the companies will operate more like Western Companies. So
Korean companies are looking for candidates who can work in the traditional way and also has
the ability to seamlessly shift between Korean and International style.

That is the reason Korean Companies are practicing complex recruitment policies like “Blind
Application” and other complex recruiting styles to better access the knowledge and adaptability
of the candidates. Recruitment Practices in South Korea have changed in recent years toward a
more competitive market system. Korean employers are using several recruiting methods
methods as shown in Table 2 (Lee, 1998).
Large companies such as LG, Hyundai, Samsung, and Daewoo typically recruit from college
campus in the fall and spring, recruiting as much as a thousand college graduates each term (Lee,
1998). As the Korean economy continues to grow, a more educated labor forces is required.
Table 3 shows the average recruitment costs per each college graduate (Lee, 1998).

Training & Development

Strategy

The performance of a civil servant undergoing long-term training shall be monitored and
assessed for the purpose of HR actions. The MOL shall not fund ex-country Bachelor’s
Degree programmed for civil servants, except where there is scarcity as determined by the
RCSC.
 Formal trainings Informal trainings

Post graduate degree Meeting

Undergraduate degree Symposium

Institutional course, Conference

Counterpart trainings In-house training;

Attachment Seminar up to five days;

Internship Workshop up to five days;

Certificate course Delegation/Summit; and

Diploma course Institutional visit.

Study Tour

Workshop exceeding five days

Seminar exceeding five days

Eligibility

• Completion of probation period to avail a short-term training, except for the orientation
program and informal in-country trainings.

• Class XII for pursuing Bachelor’s Degree and Diploma (Class X for civil servants who joined
before 2nd September 2007).

• No double degrees

Not eligible for formal training when:

• Time gap is less than 6 months (Ex Short term to Ex Short term/long term)
• Time gap is less than 1 year (Ex long term to Ex Short term)

Requirements during Training

• Undertake training as approved by the Agency/RCSC.

• Bound by “Civil Service Code of Conduct and Ethics”
• Submit Course Joining Report & Progress Reports to Agency & RCSC. Failing this, withhold
salaries, stipends, tuition fees and promotion.

Post Training Requirements

• Report to the Agency within three weeks from completion of training along with:
– joining report,
– Training report and
– Course completion certificate & academic transcripts
• Make presentation to the Unit/Division of his Agency (Long Term Trainings).
• RCSC shall organize a debriefing session (update/share).

Performance Appraisal System

In South Korea, Performance Evaluation has undergone a dramatic change. In the traditional
seniority based compensation system the evaluation was not that important. However the
evaluation system is gaining importance and it is being used widely for employee development
decisions as well as compensation decisions. The financial crisis accelerated the serge for
transformation from Ho-Bong style (pay table reflecting seniority) to the Yeon-bong je (Korean
Style merit pay). Almost 80 percent of the companies that adopted Yeon-bong je, adopted it right
after the financial crisis and the move has served them well. By 2005, almost 50 percent of the
Korean firms have some of the performance related in place to keep employees motivated and to
reward differential performance. The adoption of performance based incentive system has been
found to be co related to the increasing labor productivity and performance of the firm. This is
also increasing the popularity of PRI (performance related incentive) in South Korea.

The South Korean Government now has annual increment merit pay program for its civil
servants in Grade-3 and above and for contracted workers. Pay, thus consists of two kinds of
components:
1. Basic Pay or fixed pay (and allowances)
2. Variable pay component, which depend on appraisal results under an MB09 system.
Individual ministers are given the freedom to set the amount and Grades of PRI, but the overall
quotas are set for the performance levels that is measured and evaluated under a scale of 4 points
(Excellent, outstanding, normal and unsatisfactory). Payment varied from 8%, 5% to 3% for
normal as merit increments for top level officials and for other annual bonus from 110% for
excellent, 80% for outstanding and 40% for Normal. Around 30% of employee strength falls
under unsatisfactory group and they are denied

These changes in the Performance Management System has shifted the management orientation
towards being more individualistic, contract-based and meritocratic, emphasizing greater
performance and competencies in HRM. Some managers tried to orient employees’ mindsets
away from seniority by establishing new performance appraisal (PA) systems with performance
more central to evaluation criteria and intending to more closely link pay to performance. Data
on the performance of employees obtained from PMS began to replace information on personal
characteristics (e.g., seniority, educational and social backgrounds) in making decisions about
important HRM issues such as pay, promotion, training, and so forth.

One survey (KRIVET, 2005) found PA results were provided to workers in over one third (37%)
of companies (with 100 or more employees). However, Korean managers still tend to feel
uncomfortable articulating what their subordinates have done in their jobs against performance
criteria in face-to-face meetings. Managers may feel that teamwork and relationships with
subordinates could be damaged if they articulate their staff’s performance and differentiate staff
based on their performance. Although managers have to rate their subordinates for business
purposes, many would prefer not talking with staff about their performance directly face-to-face.

In addition, combined with a traditional seniority-based ranking system, a face-saving culture

encourages people to care about their titles (e.g. on their business cards), which show whether
they have been promoted in a timely manner in accordance with seniority. Even though senior
employees may accept the changing reality that they could be outpaced by junior employees in
terms of pay and promotion, they still want their face to be saved among their family members
and acquaintances. Indeed, companies try to prevent morale from declining due to merit-based
PMS and PA systems by letting employees use their traditional titles corresponding to their
tenure.
 Compensation & Benefit Programs

The Korean compensation system includes basic wages, bonuses and allowances. Almost every
Korean company provides guaranteed annual bonuses, typically equaling two to six months of
salary and paid in four equal installments during the year. Profit sharing is also common when a
company performs well. Local companies typically provide profit sharing indiscriminately to
every employee at an average rate of 100 to 300 percent of the employee’s monthly salary.
Foreign companies, on the other hand, usually base compensation more on individual
performance. These different bonus programs reflect the different emphasis Western and Korean
culture place on the individual versus the group. In addition to wages and bonuses, many
employees receive allowances for meals, housing and transportation. They may also receive
special allowances for children’s education and for family-related events like birth, death or
marriage.

To keep wages down, the Korean government encourages employers to use a total pay scheme
that considers all forms of compensation, including bonuses and allowances, in setting
bargaining goals. Most unskilled and semi-skilled workers in manufacturing industries are paid
on a piecework basis.

The mid level management receives benefits such as car and driver, club memberships and the
freedom to spend certain amounts of company money without having to provide an itemized
account for it.

The minimum hourly wage in 1994 was 1,170 won, but very few workers would accept a
position at that level because the average hourly wage in manufacturing is almost 2.5 times
greater than that number. The following workers may be exempted from the minimum wage
requirement:

 workers with mental or physical impairment;

 workers on probation;

 workers receiving in-plant vocational training; and

 Workers for whom the requirement is deemed appropriate.

The Labor Standards Law also mandates certain allowances covering overtime, holidays, annual
leave, menstruation, and maternity leave. Overtime pay must be provided at a minimum of 150%
of regular salary for work performed beyond the normal 8 hour work day, for night work
(between 10pm and 6am) and on holidays. Paid annual leave is 10 days per year of work without
absences and 8 days for 90% attendance or better. For each additional year, employers must
grant one additional day of paid annual leave, with no ceiling. In addition, women receive
menstruation leave of one day per month with pay and maternity leave of 60 days.

Retirement, Death, Disability

The Korean government instituted the National Pension Law (NPL) in 1988, a law that outlines
the minimum benefits that a company with more than five employees must pay upon retirement,
death or disability. The NPL serves as the only major government-operated benefits plan. Other
benefits plans are sponsored by employers or mandated by the government through the Labor
Standards Law.

Basic retirement benefits are payable at age 60 if the employee has contributed to a retirement
plan for at least 20 years. Employees can elect to receive reduced retirement benefits from age
55, but the government is encouraging companies to raise the retirement age to 60.

The pension plan is calculated on a complicated formula based on a monthly standard salary,
average monthly salary, and the number of years that an employee has contributed to the plan.
Monthly earnings are defined to include guaranteed bonuses and allowances. Additional pension
benefits are provided for an employee’s spouse, a maximum of two children under 18 years, and
parents over 60. Employers, employees and the government equally share the pension plan
funding, contributing 2% of the current total premium rate of an employee’s monthly
compensation. The rate is scheduled to increase to 9% in 1998.
The NPL also provides for an annual Survivor Pension, paid upon an employee’s death to one or
more dependents. The amount of the Survivor Pension depends upon the number of years the
employee worked. Disability benefits, determined by the severity of the disability, are also
provided to any employee who has worked for at least one year and payment depends on the
severity of the disability.

The Medical Insurance Act (MIA) requires companies with five or more employees to offer
medical benefits for illness, injury, childbirth or death. Employers and employees equally share
the funding and premiums for health insurance range from 3% to 8% of an employees wage and
are contributed directly to a Medical Insurance Society. Large companies often establish their
own society that covers employees of that company. Coverage includes medical consultation,
medicines, hospitalization, surgery, maternity care, ambulance services, nursing and funeral
expenses. The level of reimbursement depends on where the service is provided. Most Korean
companies do not provide supplementary health care coverage beyond the benefits mandated
under the MIA.

The Industrial Accident Compensation Insurance Law requires all businesses to carry labor
insurance. Workers who suffer job-related injuries receive not only full medical coverage but
also 70% of their wages while they are unable to work. For job-related death, the employer must
pay the workers funeral expenses and give the equivalent of 300 days of wages to the employees’
family.

Korean companies generally do not offer benefits beyond those required by law. Benefits as a
percentage of average weekly wages are no higher in Korea than in other countries. Also, most
Korean companies are adopting a wait-and-see attitude with respect to benefits until they can
determine how the new NPL works in practice.

Foreign companies generally offer greater benefits than local Korean organizations in order to
attract more qualified workers. Many multinationals use a group life insurance policy to enhance
the legal minimum benefits an employee’s family would receive in the event of an employees
death by up to 30 months of basic pay.
A recent new trend has been to provide time saving services for company employees. For
example, Hyundai Electronics opened an Employee Benefit and Service Center in March of 1996
so that employees would not spend time on personal matters during business hours. The Center
provides condominium and ticket reservations for employees business trips and holidays, legal
advice following auto and other accidents, and recommendations on payment of various public
taxes. The center is designed so employees can concentrate on their jobs while leaving these
chores to us, said Kim Jae-Woo, the facility’s senior manager.

Employment law and Labor Law in South Korea

Employment contracts

To start with, employers have to have a clear understanding of the employment contracts in
Korea. Under the LSA, all employers must enter into a contract with their employees specifying
wages, working hours, weekly paid day off, paid annual leave and other working conditions. Any
contract failing to satisfy the LSA standards will be rendered null and void, says Hyun. Also,
general practices in Korea favor 'open ended' contracts. Typically, contractual provisions for
individual employees determine special and employee-specific terms and conditions, not covered
by relevant laws, the rules of employment (ROE) or the collective bargaining agreement (CBA)
if applicable.   

Labor unions

There are two national centers in Korea: The Federation of Korean Trade Unions and the Korean
Confederation of Trade Unions. The Union membership is approximately 1.5 million, Hyun
informs.

The legal requirements for union formation in Korea are:

· Any two employees may organize a union

· No report obligation to the company
· Registration at the District government

Rules of employment
· Rules of employment (ROE), commonly known as 'employee handbook' by foreign-invested
companies, state basic working conditions of employees
· Under the LSA, any company with 10 or more employees in Korea is required to prepare a
ROE that provides information on working hours, wages, severance payments, etc
· Under Korean law, the provisions of a company's ROE may not fall under the LSA's minimum
standards, lest they be rendered null and void
· An employer is required to obtain the comments of the majority of employees or the majority
union, then must file the ROE (including comments) to the Ministry of Labor or face an
administration fine of 5 million KRW
· Amendments to the ROE which may be deemed advantageous to existing employees (i.e.,
reduce any benefits or increase obligations), will be necessary to obtain consent of a majority of
employees or the union

Considerations for restructuring/layoffs: legal implications

1. If it is an "urgent business necessity", e.g.: losing money

2. Lay off has to be based on reasonable and fair criteria
3. Employers must serve 50 days' notice to employee representative or union (majority union)
and good faith consultation in connection thereto
4.  Employers must serve 30 days' prior notice to the Ministry of Labor if laying off, in general
10% of the workforce
5. Employers have an obligation to rehire those who are dismissed if company decides to hire
new employees considering the positions of these previously dismissed employees within three
years of their departure

Severance and pension obligations

· Eligibility: a departing employee (regardless of the reason) who has worked for at least one
year with the company
· Minimum Payment: at least 30 days' average wages for each year of service
· Discrimination among employees of similar levels is prohibited
· Interim severance payout 

Termination Procedures

Korean companies seldom dismiss employees, in part because of their general paternalistic
nature, and partially because of stringent laws on termination practices. The Labor Standards
Law states that employees may not be dismissed, suspended, or transferred without cause.
Providing cause can be a lengthy process with numerous employee appeals that might needlessly
divert a companies resources and time. Korean courts have interpreted justifiable cause narrowly.

An employer may be subject to civil and criminal prosecution under the law for wrongful
dismissal. Although an unjustified dismissal can be reversed, the situation can be complicated for
the employer if the dismissal can not be justified. In cases where the dismissal is not justified, the
employer must reinstate the worker and pay a significant fine. All terminated employees,
whether their dismissal is justified or not, is entitled to receive 30 days notice or must be paid 30
days wages unless:

 the dismissed employee has purposefully damaged the employers business;

 the business has been discontinued because of an act of God; or

 Workers are paid on a monthly basis.

Further, terminated employees are entitled to receive severance pay of at least 30 days average
wages for each consecutive year of employment.

There are also restrictions against plant closures. If an employer closes a business temporarily,
workers must be paid 70% of their average wages while the business is closed.

Korea s legal impediments to dismissal and retrenchments have made restructuring difficult for
foreign firms. They have addressed the situation by implementing early retirement programs,
many of which have been successful. To avoid these kinds of pitfalls, however, foreign
companies planning to enter the Korean market should carefully select and train employees so as
to avoid labor problems.
 Discussion

South Korea is a collectivist society that has seen rapid change in its human resource
management since its 1997-1998 economic crises. Prior to their foreign currency fallout of 1997,
South Korean human resource management policy was primarily focused on seniority based
compensation and advancement. Employees could typically expect to have lifelong careers
within large South Korean companies. Human Resource Management in South Korea began to
change in the early 1990s’from a seniority based system to performance based. Per a recent
survey of Korean companies with over 100 employees, 45.2% are using merit-based
compensation practices (Chang, 2006). These HR policy changes have been referred to as the
New Human Resource Management trend (Chang, 2006).

As the issues unfold during the paper, we have learnt some of the most unique factors about the
Human resource Policy and Performance Management system of South Korea. South Korea
went through a lot of changes in the last couple of decades from a war torn nation which was
totally dependent on agriculture to a highly industry based country. The shift was possible only
because of the efficient management policy and effective Human resource Management which
ensured a great pull of workers not from South Korea but also outside the country. The country
has experienced an abundance of FDI in the last couple of years and it is continuing to grow
because the availability of resources not in terms of capital but also in terms of Human
Resources.

Vocational training has also played an integral part in the Government’s emphasis on improving
the quality of Korea’s labor force. The Korea Manpower Agency (KOMA), part of the Ministry
of Labor, conducts public training that focuses on basic skills and new technology skills. The
government also requires employees in major industries and in businesses with more than 150
workers to provide in-house vocational training. Industries covered include mining,
manufacturing, transportation, warehousing and communications. If these employers do not
provide training, they must pay taxes equivalent to the cost of training. Religious bodies also
conduct some authorized training as charitable endeavors.

The technology is also an important issue in the management performance of South Korea. The
technological advancement especially in the telecom sector has verged to a higher level in the
functioning of the Human Resource and other functions of the companies in the country. The
Internet Speed so high in the country that training and development has become instantaneous
and without much effort regardless of distance and time. The technological advancement has
surged the use of online training and off the job training mostly.

In case of performance appraisal and performance management system the country has emerged
to a pay for performance system which mainly motioned from the western culture. The country
used to practice the traditional seniority based performance system which was mainly a
conservative approach to appraise and measure the overall performance of the employees that
didn’t go with modern view of high performance based management system of the country that
has triggered the industrial revolution and high growth of skilled labor force.

The labor policy is also very vigilant and friendly for the employees. The Korean Government
emphasizes highly on worker’s right, flexible hour works and weekly bound working hours
unlike the Japanese practices which focuses on completion of task at any cost. That fosters a high
level of satisfaction in the minds of the employees who usually don’t prefer to go outside of the
country because the Government is concerned about the transportation of labor and they prefer to
take local people in the management of the local as well as the foreign companies operating
within the country.

Lesson Learnt and Recommendation

In the Perdue of the discussion the lesson that we have learnt from the Human resource and
management policy of South Korea that performance is the greatest tool for measurement and
pay should be based on performance rather on any other issue if any company has to retain and
maintain the skill labor base. The high technological innovation and adoption has to be
maintained in the management and Human resource manual of the company. So the companies
local or foreign, if they want to establish an effective management system the following
recommendation may be applied and practiced in terms of different issues and functions as
discussed below:

I. Being a Manager in South Korea: To ensure successful cross cultural management in

South Korea, you need be aware of the strict protocols and rituals that exist. In business it
is important to maintain a degree of formality. Older South Koreans and those in senior
positions should be treated with respect and deference. This is a culture that respects
hierarchy as can be seen in the use of the word "sonsaengnim", which means "respected
person" that is frequently used when addressing someone of a higher stature. A South
Korean businessperson will want to know your name and which company you represent.
If your company has not done business in South Korea in the past, it is a good idea to
send information concerning your company prior to the first meeting.
II. The Role of a Manager: When managing in South Korea, cross cultural management
will be more successful if you bear in mind that each person has a very distinct role
within the organization, and maintaining that role helps to keep order. In South Korea, as
in other hierarchical societies, managers may take a somewhat paternalistic attitude to
their employees. They may demonstrate a concern for employees that goes beyond the
workplace and strictly professional concerns.
III. Approach to Time and Priorities: South Korea is a fluid time culture, and as is the case
with many fluid time cultures, it is also very relationship-oriented. People in South Korea
will not want to upset others in order to force adherence to a deadline, however, global
and intercultural expansion means that some managers may have a greater appreciation of
the need to enforce timescales and as such, agreed deadlines are more likely to be met.

IV. Decision Making: Most executives’ offices are not on the same floor as their staffs’.
Seniority is equated with rank and authority, and demands strict conformity to a
meticulously prescribed protocol. At the same time, South Koreans are amenable to
adopting western concepts of management. Since social class is important to the culture,
it is nearly impossible for a lower class person to supervise a person from a higher class.
Intercultural sensitivity is essential as it is considered a serious breach of etiquette to put
a young person in charge of older workers. Employees expect companies, and their
managers, to be paternalistic.

V. Boss or Team Player: Management styles are a combination of Confucianism and

western behavior, depending upon the person’s education and background. Since this is a
hierarchical culture, most decisions are made at the top and then given to the employees
to implement. Personal opinions and criticism are suppressed and the team generally
follows the ideas of the more senior members of the team. Disagreements are voiced
privately and rarely, if ever, in public.
VI. Communication and Negotiation Styles: Personal relationships are required for
successful business relationships. The initial meeting will be used to develop a rapport
rather than discuss business. Find out who will be represented on the negotiating team
and try to bring team members who will be a good match of rank, skill, and perspective.
In the beginning of your relationship, keep a friendly, but not overly familiar tone.
Decision-making is a slow process. Be patient. It may take several trips to bring a
contract to completion. South Koreans can be non-confrontational and hesitate to give an
overt "no" response to a question. Likewise, a "yes" may not be an affirmative response.
Begin with a price that leaves room for negotiation and find areas in your position where
you can be flexible.

Conclusion

In general, Korean employees are loyal and hardworking. However, foreign managers must
motivate them and be especially sensitive to Korean work habits. Here are some key reminders:

 Develop personal relationships and maintain operations as usual when a new manager
takes over. Drastic organizational changes create unrest, uncertainty and confusion.
 Develop a group-oriented and long-term approach to employees. Trust is based on
personal relationship, and strong relationships are crucial in motivating Korean workers.

 Always speak modestly of one and retain self-control. Koreans admire leaders who are
firm but wield gentle authority. They do not like loud show-offs.

 Always be aware of the status and hierarchy of anyone with whom you interact. Show the
proper level of respect at all times or Koreans will become easily offended.
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