Hyundai Motor seeks to end seniority-based pay

In a bid to curb rising domestic labour costs, Hyundai Motor is seeking to base wages on merit not seniority in an overhaul of a decades-old salary system that puts the South Korean firm on a collision course with its activist union.

South Korea is the world's fastest ageing major economy, and high labour costs are eroding its manufacturers' competitive edge as economic growth slows.

If Hyundai Motor, one of South Korea's biggest employers, succeeds in revamping its pay structure, other companies are likely to follow suit. That will accelerate a move away from a wage system still prevalent in South Kore- a legacy of years of heady economic growth and a culture that reveres seniority.

"Our wages have reached a critical limit as a manufacturing company," Hyundai chief executive Yoon Gap-han said in a letter to workers proposing the change. "I am concerned that Hyundai may face a situation where it is impossible to produce vehicles at domestic factories any more."

Hyundai Motor is the flagship firm of South Korea's second-largest conglomerate, and one of its most influential. Its long-serving workers in Korea earn nearly twice as much as junior workers doing similar work, a company spokesman said, and overall, they are paid more than their colleagues elsewhere, including in the United States.

The restructuring proposal would not reduce current wages or result in immediate cost savings, the company said, declining to say how much savings it was targeting. Experts, however, said it would control future wage costs as workers age and the company's growth slows. The average age of Hyundai's unionised workers in South Korea is 45.5 years.

"But it will take an enormous time to reach an agreement," a Hyundai Motor executive said, declining to be identified.