Nearly half of South Korea’s major companies and their affiliates have introduced the controversial “peak wage” system that places a wage ceiling on senior employees, the Ministry of Employment and Labor said Wednesday.

According to a poll by the ministry, 177 companies or 47 percent of the 378 surveyed private and state-run affiliates from the nation’s top 30 conglomerates by total assets have implemented the peak wage system, with most of them planning to further broaden it in phases.


Under the peak wage system, companies pay senior employees reduced salaries after the workers “peak” at a certain age, generally between 55 and 60, in return for extending their retirement age by a few years.

The peak wage system is in place at 55 percent of the top 15 conglomerates, including Samsung Group, Hyundai Motors, SK Group, LG Group, POSCO, Lotte Group and GS Group, whereas 25 percent of those ranked from No. 16 to No. 30 had adopted the system.

Among the companies implementing the system, 37.5 percent of their employees started to receive slashed salaries at age 56, followed by those aged 58 at 29.2 percent, 57 at 16.7 percent and 59 at 12.5 percent.

With the system in effect, those who started to receive reduced pay at age 56 saw a 10 percent decrease in their salaries, while those receiving the cut from age 60 saw their salary drop by 40 percent.

With the official retirement age set to rise by two years to 60 next year, the government has pushed for expanding the system into the private sector to curb joblessness for the young despite labor unions’ opposition to the scheme.

While the unions claimed that the system will only benefit employers by reducing their labor costs, the government decided it will adopt the peak wage system for 316 state-run organizations starting next year.

The peak wage system is a part of the government’s extensive campaign for labor market reforms to overhaul what it called the “rigid” labor market to generate more jobs for the young.

“There has been progress in companies adopting the peak wage system, but they should pour more efforts into settling it to tackle youth unemployment,” said an official from the ministry.

The authorities set out a first batch of reform plans on June 17, which include the expansion of the peak wage system into the private sector by offering subsidies and consulting to firms willing to adopt the system. 

By Ock Hyun-ju (laeticia.ock@heraldcorp.com)