Salary Reform in South Korea and Japan. Pan Suk Kim Underwood Distinguished Professor Yonsei University, South Korea

Transcription

1 Salary Reform in South Korea and Japan Pan Suk Kim Underwood Distinguished Professor Yonsei University, South Korea

2 Contents 1. Introduction and Background 2. Korean System 3. Korean Performance-Related Pay 4. Japanese System 5. American System 6. Implications

3 1. Introduction & Background

4 Related Terms Compensation Pay Wage Salary Incentives 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 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 5

6 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 Grade 6 Grade 7 Supporting Grade 8 Officer Grade 9 SCS SCS Political Appointees (Ministers and Deputy Ministers) Career Civil Servants * Open competitive exams: three written entrance exams (3 levels--grades 9, 7, and 5)

7 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.

8 Ministry of Public Administration and Security (MOPAS)

9 2. Korean System

10 History of Remuneration System Development 1948 ~1960s Enacted the State Public Officials Act(1949) Enacted the Presidential Decree on Public Officials Remuneration(1949) Enacted the Presidential Decree on Public Officials Allowance(1962) 1970s ~1990s 5 Grades 9 Grades(1981) Introduced the annual salary system(1999) Introduced the performance-related pay system(1999) 2000s Introduced the Senior Civil Service (SCS) system(jul. 2006) Simplified allowances: 32 30(Jan. 2011)

11 Principles of Remuneration Determination The complexity of duties & the degree of responsibility By grade Price levels & standard living cost of general public Appropriate balance with private enterprise wages Livelihood wage External Balance Proper remuneration Balance between public officials in career & non-career service Internal Balance Article 46(1)-(3) (Principles of Determination on Remuneration) of the State Public Officials Act

12 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.

13 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.

14 Korea: Base Pay of the General Service (monthly base pay; Korean Won in 2011) Step 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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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, ,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

15 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) Family support (4 types) Special allowance (15 types) Overtime work, etc. (4 types) 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. 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%

16 Annual Salary Table for Higher-level Officials with a performance appraisal system (2011) G r a d e M a x i m u m M i n i m u m Grade-1 89,271,000 59,507,000 Grade-2 82,505,000 54, Grade-3 76,700,000 51, Grade-4 70,166,000 40,781,000

17 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 Prime Minister 138,841 Chairman of the Board of Audit and Inspection Minister of Legislation, Minister of Veterans Affairs Minister of Trade Negotiation President s Chief of Staff 100, ,040 Deputy Minister-level 99,153

18 Procedure of Remuneration Adjustment Annual survey of private sector wages Establishment of a remuneration improvement plan (MOPAS) Inter-ministerial consultations & decision of draft government proposal Budget plan approval (National Assembly ) 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 increase rate 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 Revision of related laws (MOPAS) Revision of the Presidential decrees on public officials remuneration & allowances e.g. Change of salary tables, the amount and rate of allowances

19 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)

20 Public Servants Salary Index: Year Increase in Base Pay Ratio to Private Salaries Rate of Increase in Wages in the Private Sector Rate of Increase in Consumer Price Economic Growth (5) (5) (0) (0) (3) 88.4 (91.1) (5.5) 93.1 (95.3) (8.5) 94.8 (96.8) (3) 95.5 (97.3) (3) 95.9 (97.7) (0) 93.1 (94.3) (1.8) 91.8 (Same) (1.6) 89.7 (Same) (1.8) 89.0 (Same) (0.0) (0.0) (6.5)

21 Ratio to Private Salaries Private wage increase rate Inflation Ratio of public officials salary to private salary 15% % % % % % 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)

22 3. Korean Performance- Related Pay

23 Performance Agreement for Senior Officials

24 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.

25 PRP Scheme for Senior Officials Appraisal Grade Excellent (Grade S) Outstan -ding (Grade A) Normal (Grade B) Unsatisfactory (Grade C) Payment Scope Top 20% 30% 40% Bottom 10% Performance Pay Rate 15% 10% 6% 0% Champion Mediocre

26 PRP Scheme for Middle- and Lower-Level Officials Appraisal Grade Excellent (Grade S) Outstanding (Grade A) Normal (Grade B) Unsatisfactory (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%

27 Strategies to Utilize PRP Schemes: Develop a Model Case Unfair Appraisal Fair High Meaningful Type B Type I Participation Type D Rewards Type A Type C Low Low Measurability High Not Meaningful

28 4. Japanese System

29 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.

30 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.

31 Japanese Salary Structure

32 Japan: Salary Table Administrative Service

33 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.

34 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.

35 Japan: Remuneration Survey

36 Japan: Remuneration Recommendation

37 Japan: Base Pay and Allowances Base Pay (83%) Allowances (17%) Base Pay (82%) Allowances (18%)

38 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 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.

39 5. American System

40 Salary Table of the American Federal Government in 2011:General Schedule (GS) 1-15

41 American SES and Executive Schedule in 2011 Structure of the SES Pay System Agencies with a Certified SES Performance Appraisal System Minimum Maximum Executive Schedule Level I Executive Schedule Level II Executive Schedule Level III Executive Schedule Level IV Executive Schedule Level V

42 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

43 6. Implications and Lessons Learned

44 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 It is needed to raise civil service wage over private wage increase rate. 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

45 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?