2. Today’s speakers
Andy Park CJ Kim
Principal, Ph.D. Principal, Retirement, Risk and
Korea Market Leader Finance Consulting Korea
Andy.park@mercer.com cj.kim@mercer.com
+82 2 3404 8311 +82 2 3404 8392
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3. Agenda
1 Korea in General
2 Culture of Korean business context
3 Talent and HR Issues
4 Benefits Practices
5 Labor Legislations
6 M&A in Korea
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4. 1. Korea in general
1 Korea in General
2 Culture of Korean business context
3 Talent and HR Issues
4 Benefits Practices
5 Labor Legislations
6 M&A in Korea
5. Country Overview
Korean culture overview
Korean culture overview
• Despite outside influences from its neighbouring countries, South Korea has maintained a distinct and homogeneous
identity.
• The people of Korea share a common pride in the country’s unique cultural and linguistic heritage that has emerged
during its long and turbulent history.
• As a result, Korea boasts an enriched cultural outlook that is reflected in its current business culture.
Fact file on Republic of Korea
Population 48.5 million Korean, English widely
Official
taught in junior high
language
Capital city Seoul and high school
USD 1,425 bill. (10)
GDP
4.5% (10) GBP1=KRW1,799.3
Growth %
4.0~4.5% (11e)
Exchange rate
3.3% (10)
Inflation rate (Dec 2010) USD1=KRW1,157.6
3.5% (11e)
Unemploym‐ 3.8% (10)
EUR1=KRW1,529.5
ent rate 3.5% (11e)
Almost 22 mil (50% of population) people live and
work in greater Seoul Areas
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6. Economy and Business
Heavily dependant on exports and a few large conglomerates
– World’s 7th largest exporting country
– SMEs accounts for almost 90% of employment, but only account for less than 40%
of GDP and exports
– Top 30 conglomerates generates nearly 50% of GDP, and 70% of exports
– Top 10 sectors (Ship-building, Semiconductors, Cars etc) generate 65% of exports
– China takes more than 30% of exports from Korea
Rapid globalization
– Has opened many system to foreigners (proactive and aggressive for FTA)
– Beyond export – toward global companies
Korean firms such as LG/Samsung/Hyundai – more than 50% of employees & 80%
of revenues now comes from outside Korea
– Globalization of hardware and operation has been fast, whereas software and
culture/style has been slow
Savvy consumers and early adopters
– Many MNCs do test new products in Korea (especially high-tech, luxury goods &
consumer goods)
– Good internet and wireless infrastructure
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7. Workforce Characteristics and Demographic Changes
Strong passion for higher education
– Nearly 85% of high school graduates enter college or universities
– Significant portion of high-school and university students go overseas to study higher degree
– Educational background is still one of major drivers to impact career and success in Korean
society
Male dominant tendency has been weakened
– More than 50% of college/university graduates are female, and participation of economic
activities by females has been rapidly increasing
– Still significantly less female portion in above manager levels, whereas significantly increased
portion in staff level. But, expected to increase significantly in next 5 yrs
Baby-boomers: started to retire from 2010
– Huge capability gap is expected, along with the fact that Korea is going to be one of countries
that has highest level of retirees in next 5 years
– Lowest birth rate among OECD countries
– Companies are facing difficulties in succession planning
Graduates with engineering degrees are expected to grow slowly
-One of key success factors of Korean economy was talent in engineering and R&D. Slow growth and
decrease of engineering talent supply may weaken competitiveness of Korean companies and
economy
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8. 2. Culture of Korean business
context 1 Korea in General
2 Culture of Korean business context
3 Talent and HR Issues
4 Benefits Practices
5 Labor Legislations
6 M&A in Korea
9. Confucianism Influence to Korean Corporate Culture
Even though Korean corporate culture has been mingled with Western and practical values,
Confucianism still significantly impacts Korea firms’ corporate culture as following:
Paternalistic leadership Family‐like working environment
• Like the role of a father, the superior or employer is • The superior plays the role as a parent while the senior
expected to lead and command authority. staff plays the role as elder brother.
• Paternalistic thinking remains strong among the • When the employees feel that they are part of the
leaders in many Korean companies. company, the sense of belonging can be built and
everyone is willing to work hard for the company.
Hierarchical structure Family ties & blood‐based succession
• The management decision‐making process is highly • In Confucianism, the eldest son is expected to inherit
centralized with the authority concentrated on senior the family assets and succeed his father.
levels.
• Many Korean company owners have applied the same
• It is often difficult for individuals to voice dissenting concept to their managerial succession.
views due to the hierarchical culture.
Gender inequality Collectivism
• The Confucian concept of “women should place first • Korean people value group interest more than
priority on family responsibility” has caused gender individual interest.
inequality in Korean management culture.
• Emphasizing team work spirit has proven to be the
• Overall, women have received lower salaries compared effective tool in many companies to enhance
to their male colleagues. management efficiencies and productivity.
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10. Practices and Phenomenon from Impact by Confucianism
Meeting practices Hierarchical Impact Relationship
• Prior appointments are required • Korea is known for its vertical • Responsibility is delegated to
and should generally be made social structure based on age trusted, dependable
one or two weeks in advance. and social status. subordinates by their superiors.
–The most suitable times are –The organizational –Don’t offend or ignore the lower
normally between 10am and arrangement of Korean ranks and to show the various
12pm or 2pm and 4pm. companies is highly centralized managers the same respect as
–However, client can request to with authority concentrated in other senior levels.
arrange a meeting one or two senior levels.
days in advance and suddenly. • Age is the most essential
• Punctuality is essential. • Influenced by Confucianism, component within a relationship.
–Your Korean counterparts will Koreans respect for authority is –A person older than you
expect you to arrive on time as paramount in their business automatically holds a certain
a sign of respect. It is advised culture and practices. level of superiority.
to call beforehand if you will be –High-ranking individuals tend to
delayed. have more power over their • Personal ties, such as kinship,
–Top Korean business subordinates than in the West. schools, birthplaces etc, often
executives may arrive a few –Decision making in Korea will take precedence over job
minutes late to appointments. It follow a formal procedure in seniority, rank or other factors
means a reflection of their which senior approval is –Those have significant
extremely busy schedule. Don’t necessary. influence over the structure
take it as an offence. and management.
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11. Korean Title
• Korean title system is directly linked to rewards and promotion in some companies, whereas used only for
calling purpose in some companies that introduced separated internal grade system based on role-level or
position value. This practices caused confusion especially to foreign invested companies
• Foreign invested companies need to decide if they will use Korean title or not. In addition, the decision for
what areas will be linked to Korean title should be clearly made and communicated to employees.
– Once Korean title system adopted, Korean employees tend to manage their career based on Korean title
system, even if it is not officially linked to rewards or promotion
Actual Grade based on
Position Value Korean Title System Actual Grade based on Role
Jeonmu (SVP) Teams Leader
G1 PC1) 59~62 G1
Size of Role & Responsibilities
(Director/Executive)
Seniority / Service Yrs. Sangmu (VP)
Easa (VP)
Position Value
Team Leader
G2 PC 43~58 G2
Bujang (Sr. Mgr.) (Manager)
Chajang (Deputy Sr. Mgr.)
G3 PC 47 ~52 Senior G3
Kwajang (Mgr.)
Daeri (Assist. Mgr.)
G4 PC 41~46 Junior G4
Sawon (Staff)
1) PC means Mercer’s Position Class
Don’t address Korean by his or her given name as it is considered extremely impolite.
• Korean names begin with the family name and are followed by a two-part given name. The correct way to address a Korean is with Mr, Mrs, or Miss together
with their family name.
• In business card, there are Korean calling title linked with their hierarchy and job grade. (Daeri, Kwajang, Chajang, Bujang, Easa, Sangmu, Jeonmu, etc.)
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12. Under Transition now
Even though there are several unique traditions in corporate culture, now many
organizations as well as society are under transition towards new culture. Therefore, it’s
difficult to define/judge culture and value in one dimensional perspective, and so managing
culture will be challenge to foreign invested companies in next 3~5 years
Focus on Manufacturing and Engineering vs. Services and Marketing
Seniority vs. Competency, Performance and Job
Educational background vs. Purely only with assessed competency
Group vs. Individual Value and Performance
Unity/Homogeneous Culture vs. Diversity
Depend heavily on Koreans for key jobs vs. Leverage foreign talent/experts
Male dominated vs. Diversity
Centralized Decision‐making vs. Empowerment and Bottom‐up Communication
Focus on In‐Person Culture vs. Smart, Remote & Flexible Working
Korean title vs. Job Grade
Long‐term Job Security with strong loyalty vs. Flexibility of Job Market with High
Turn‐over (Focus on Internal Equity vs. External Equity)
Developing multi‐players (mobility) vs. experts
Costs vs. Long‐term Investment on Talent
Korean traditional HR policy vs. westernized HR policy
Base Pay Focus vs. Incentive (Performance‐based pay) Focus
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13. 3. Talent and HR Issues
1 Korea in General
2 Culture of Korean business context
3 Talent and HR Issues
4 Benefits Practices
5 Labor Legislations
6 M&A in Korea
14. Key characteristics of talent market in Korea
Recently, people want to work for large, well‐known, stable Korean conglomerates
rather than foreign invested companies whose size and career advancement
opportunities are smaller
Active job market for experts / foreign invested companies vs. Inflexible job market
for general jobs / Korean local companies / executive levels
Key talent = experts with experience in specific fields or global business settings.
Even though there are abundant generalists, key talent pool is still small. Therefore,
many foreign invested companies have been poached by Korean local companies
especially at the stage of middle managers
Unemployment rate is higher in younger generation even though talent supply
growth is low ‐ Next generation talent pipeline at risk in conjunction with baby‐
boomer retirement
Needs and expected value from Job/Company are significantly different in Gen Y and
female talent (Gen Y appreciate opportunity of L&D in global setting)
English literacy is high, but difficult to find English speakers who are competent in
business settings
Talent whose background is R&D and engineering are expected to decline
Union impact heavily on talent segment of blue color and operators
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15. [Job Distribution of Foreign Companies in Korea
According to Mercer analysis based on Mercer TRS, most of foreign invested organizations have under 400~500
employees and focus on sales and marketing in Korea. Therefore, facing difficulty to attract and retain competitive talent
due to lack of career advancement and mobility opportunities, compared to Korean conglomerates
Project Ma na gement 1%
Cons ul ti ng 14%
Res ea rch & Devel opment 16%
Sa l es & Ma rketi ng 29%
Ma nufa cturi ng 33%
Corpora te Affa i rs 38%
Conta ct Centre 41%
Qua l i ty As s ura nce 46%
Genera l Ma na gement 48%
Engi neeri ng 62%
Informa ti on Technol ogy 66%
Suppl y & Logi s ti cs 70%
Ma rketi ng 74%
Admi ni s tra ti on 74%
Huma n Res ources 74%
Fi na nce & Accounti ng 91%
Sa l es 94%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
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16. Key Stats of Foreign Companies’ Job Market in Korea
Turnover Rate 2009 Retrenchment Rate 2009
Average based Average based
14 8
7.5
11.8
12 7
6
10 9.0 9.1 8.8
5
8
3.7 3.7
4 3.4
6 5.3
3
4
2
1.5
2 1
0 0
ALL CH CP HT PH ALL CH CP HT PH
Salary Increase 2009, 2010 & 2011_Including Freeze
Average based
8.0
2 00 9 20 10 2 01 1
7.0
6.1
5.6 5.7 5.9
6.0 5.6
5.2 5.2 5.5
5.0 5.1
5.0 4.4
4.0 3.7
2.8 2.6
3.0
2.0
1.3
1.0
0.0
A LL CH CP HT PH
Source: Mercer TRS Post Session Report 2010
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17. Key Stats of Foreign Companies’ Job Market in Korea (Continued)
Portion of variable pay linked to performance is various across industries and role level.
In average 10% to 35%
Annual Total Cash_Actual
KRW 000
320,000
Staff Professional Management Top management
300,000
280,000
260,000
240,000
220,000
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67
All CH CP HT PH
Source: Mercer TRS Post Session Report 2010
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18. Key HR Issues (2009 ~ 2010) in Korea: Korean Conglomerates
HR KPI renewal
Performance‐based system
HR strategy Reinforcement of HR communication
Global HR
Leadership Pipeline Management and People Session
Establishment of long‐term staffing strategy
Recruitment In‐depth selection process focusing on competencies and values
Reinforcement of leadership and top talent management programs
Training Establishment of job‐based training system
Evaluation / Career Reinforcement of strategic CDP by business unit / job family / job
development planning Alignment of evaluation with other HR functions
HR Strict management for low performers
Talent management Continuous selection and maintenance for top talents / Succession Planning
function
Compensation differentiation based on job characteristics
Compensation Review on executive compensation system
Establishment of win‐win system by Improving organizational management
Labor relations skills of field leaders / introducing time‐off / dealing with multiple union
systems
Development of outplacement service
Retirement Introducing Early Retirement Programs or Leveraging Retirees
Review on retirement pension system (Transforming to new ERSA)
HR services Establishment of e‐HR system
Re‐define HR governance and delivery models in global context
Source: Korea Monthly HR Management (January 2010)
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19. Key HR Issues (2009) in Korea: Foreign Invested Companies
Retirement (Corporate) Pension Program 73%
Leadership Development Program 63%
Performance Management System 62%
Employee Training Program 54%
Corporate Culture 54%
Job‐based HRM System 51%
Competency‐based HRM System 50%
Pay Structure 42%
Employee Opinion Survey 41%
Job Analysis / Description / Evaluation 34%
Others 21%
Performance Bonus System 20%
Sales Incentive Program 17%
Promotion System 14%
Regularization of Non‐regular Employee 14%
Flexible Benefit Program 6%
Wage Peak System 6%
0% 50% 100%
Source: Mercer Korea Benefits Report (2009)
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20. Under Transition toward New Paradigm
Due to focusing on HR paradigm shift in leading Korean local conglomerates, talent has started to be
accustomed to new HR practices. This will alleviate foreign invested companies’ concern and
challenges in HR management in Korea
Old paradigm New paradigm
Recruiting &
Attraction & retention of all Attraction & retention of key
employees talents
staffing Life-time employment Diverse employment status
Attitude , Seniority, Politics Performance, Competency, Fit
Evaluation By managers to Core Value / CREDO
By 360 degree, People Session
Internal value Market value
Equality Equity
Compensation Salary + Benefit + allowances Base pay + STI1) + LTI2) +
Complex Structure in base pay Benefits + L&D = Total Rewards
Simple structure in base pay
Collective understanding
Labor retention
Individual needs
Salary increase, working Profit sharing, employability
condition
Closed, hierarchical
Open, participatory, transparency
Culture Decentralized, peer-communication
Centralized / Top-down
One-way communication (horizontal) and bottom-up (SNS)
Real-time two-way communication
1) STI: Short-term Incentive 2) LTI: Long-term Incentive
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21. 4. Benefits Practices
1 Korea in General
2 Culture of Korean business context
3 Talent and HR Issues
4 Benefits Practices
5 Labor Legislations
6 M&A in Korea
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22. Statutory Benefits in Korea
Category Details
National pension scheme The contribution rate is 9% ( Employer 4.5%, Employees 4.5%) of the employee’s monthly salary
The contribution rate is 5.68% ( Employer 2.84%, Employees 2.84%) of the employee’s monthly
National medical scheme
salary
Unemployment pay: The contribution rate is 1.15% (Employer 0.7%, Employee0.45%) of the salary
Social security
Employment security & Vocational ability development program: The contribution rate is
differentiated by the size of the organization (Employer only contribute)
Employment insurance – Less than 150 employees: 0.25%
– More than 150 employees (First order of priority): 0.45%
– 150~1000 employees: 0.65%
– More than 1,000 employees, local government organizations: 0.85%
Industrial accident
The contribution is payable only by the employer (Employer only contribute, 100%)
compensation insurance
Employer must provide SPS or ERSA plan to its employees (Employer need to fund minimum 8.3%
SPS or ERSA
of final pay per year of service (DB) or annual pay (DC))
National holiday There are 15 national paid holidays (distributed among 11 events ) that must be observed
Others
This benefit provides to employee per every other year (employer can provide this benefits to its
Physical check‐up
employee’s dependants)
The Korean Labor Standards Act mandates that companies provide certain types of paid leave (e.g.
Leave
annual leave, monthly leave, maternity leave, etc)
Termination of employment must be confirmed and premium must have been paid for at least 6
Unemployment benefits
months within the period of 18 months prior to unemployment
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23. Other Benefits in Practice in Foreign Invested Companies
Compared to Korean conglomerates, benefits of foreign invested companies are quite less competitive especially in fringe
benefits, which most of Korean talent perceive important. These recent gap continue to make difficult for foreign invested
companies to hire competitive talent
- Financial assistant to children’s education costs, company loan, Golf/Sports club membership, Self development & etc
- Especially, gap is bigger in executive benefits (business travel policy, fare-well pay and etc)
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24. Korea Retirement Benefits System
Current plan New plan (2005~)
Severance Pay System Employee Retirement
(SPS) Security Act (ERSA)
Tier 2
Or
Insurance contract or Corporate Corporate
Trust contract DB plan And DC plan
National Pension Scheme (NPS) Tier 1
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25. SPS vs. ERSA
Government is encouraging to adopt ERSA by introducing IFRS in 2011. DC adoption rate among
Korean local companies or large organizations are still low . However, foreign invested companies
prefer transforming to DC, instead of DB (over 60% of foreign invested companies chose DC)
SPS ERSA
Permitted Plan Type
Permitted Plan Type DB only DB or DC
None 60% for DB
Funding Requirement
Funding Requirement
100% for DC
Possible only for
In‐service Withdrawal
In‐service Withdrawal Permitted
emergencies
Form of Payment
Form of Payment Lump sum only Lump sum or annuity
Corp tax benefit on external
Corp tax benefit on external Yes
No
funding after 2010
funding after 2010
10~29 30~99 100~299 300~499 500 ~
Under 10 DB DC IRA Total
employee employee employee employee employee Total
employees
s s s s s
① Number of Number of
companies 46,260 24,627 11,323 2,763 429 480 85,882
employees adopted 1,258,467 608,478 72,467 1,939,412
adopted ERSA
② Number of ERSA
Total 1,204,919 157,952 47,529 9,460 1,330 1,071 1,422,261
Companies
Ratio 64.9% 31.4% 3.7% 100%
Ratio (①/②) 3.8% 15.6% 23.8% 29.2% 32.3% 44.8% 6.0%
Source : Ministry of Labor and Financial Supervisory Service (October, 2010)
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26. Market Trend (1/2)
Multinational companies with statutory minimum are actively adopting ERSA DC but
MNCs with more generous benefits (i.e. progressive scale SPS) are slower to convert to
ERSA DC because:
– Employee consent is harder to get within corporate cost constraints
– Company may offer a sweetener, one time or spread over multiple years, to obtain
employee consent
– Or, a grandfather provision has to be offered to protect those expected to lose the
most in the transition
A number of MNCs have adopted ERSA DC plans by offering contributions rates that
are “attractive” to employees while preserving the cost of the current SPS plan. Such
approach carefully selects DC contribution rates which are better than SPS benefit
formulas but still meet the current cost constraints (e.g., 9% contribution rate vs. 1
monthly salary, or 13% contribution rate vs. 1.5 monthly salary, etc.)
Concerning the treatment of past service liability at transition, most MNCs, which
adopted ERSA DC, offered to settle and pay out accrued SPS benefit and/or to transfer
accrued benefit to ERSA plan.
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27. Market Trend (2/2)
In addition to the market trend, two important factors need to be considered:
1. A majority employee consent (50%+ of the employees) is required for an ERSA DB
or DC plan adoption
2. Generally, Korean employees are very resistant to DC plan adoption, because they:
– culturally prefer SPS lump sum benefits
– are unfamiliar with DC scheme
– are uncomfortable with taking on DC investment risks
– suspect a DC plan is expected to provide lower benefits at equivalent
contribution rates (because current SPS plan is a final pay plan while DC plan
is a career average pay plan)
Companies with union presence are taking more careful steps and explore both ERSA
DB and DC options for their future retirement plan.
Most recent market case – Leading multinational with union adopted both DB & DC
plan – DC contribution rate with direct conversion of current SPS benefit formula (i.e.
offer DB & DC to existing and new hires, 1.5 times YOS times monthly salary under DB
and 12.5% DC contribution rate which is 1.5 monthly salary)
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28. 5. Labor Legislations
1 Korea in General
2 Culture of Korean business context
3 Talent and HR Issues
4 Benefits Practices
5 Labor Legislations
6 M&A in Korea
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29. Labor Laws of Korea
Labor laws of Korea consist of three categories: individual labor relations laws,
collective labor relations laws, and employment policy and administration laws
Composition of labor laws
1
Individual labor They can be described as the body of rules concerned with the individual
relations laws relationship between an employer and employee.
2 They reinforce individual labor relations laws.
Collective labor
relations laws
They are a body of rules governing the collective relationship between
employers’ and workers’ organizations.
3
They stipulate the role and duty of the government, enterprises and
Employment policy &
employment service agencies in employment security, promotion and
administration laws
vocational training.
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30. 1 Individual labor relations laws
Selective
Name The purpose of the Act Name The purpose of the Act
To set standards for the conditions of To grant rapid and fair compensation for
employment in conformity with the workers’ occupational accidents by
Labor Industrial
Constitution, thereby securing and providing for an industrial accident
Standards Accident compensation insurance program, to
improving workers’ standards of living and
Act achieving a well-balanced development of Compensati contribute to the protection of workers
the national economy on through the establishment and operation of
Insurance the insurance facilities necessary for its
To stabilize workers’ livelihoods and Act implementation, and to carry out
improve the quality of the labor force by undertakings for preventing accidents and
Minimum guaranteeing workers a certain minimal promoting the welfare of workers
Wage Act level of wages, thereby having them
contribute to the sound development of the Wage Claim To secure the wage claims of workers
national economy Guarantee when employers lack paying ability due
Act to bankruptcies
To realize the gender equality in
Equal employment in accordance with the idea of To raise workers’ quality of life and
Employment equality in the Constitution, by ensuring
Basic contribute to the balanced development
Act equal opportunity and treatment for men of the national economy by prescribing
Workers
and women in employment the matters necessary for establishing
Welfare Act welfare policies for workers and carrying
To maintain and promote the safety and out welfare projects
health of workers by preventing industrial
Industrial accidents through establishing standards To contribute to securing workers’
Employee
Safety & on industrial safety and health, and stable livelihood in their old age by
Retirement
Health Act clarifying where the responsibility lies, and stipulating matters needed to establish and
by creating a comfortable working
Benefit operate a retirement benefit scheme for
environment Security Act workers
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31. Key contents in Labor Standard Act
Various terms regarding working conditions exist in the Labor Standard Act to protect the
rights of employees.
Key contents
Standard working 40hours a week
hours Overtime Limitation: 12hours per week
2 weeks by employment agreement (Limited to 12hrs a day & 52hrs a week)
Flexible working
3 months by written agreement
15 days for 80% & above attendance
Annual leave
1 day added bi‐annually
No monthly leave
Monthly leave
Unpaid menstruation holiday upon request
Total holidays limited to 25 days
Others
No duty to pay for unused
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32. Recent changes in Labor Standard Act (2010 & 2011)
Two recent major changes in Labor Standard Act are ‘Allowance of multiple union representations’ in
one company and prohibition of ‘Payment for full-time union officials’.
Old law New law
Multiple union representations are
allowed in one company. (Effective
Multiple union Only one union representation is As of July 2010)
representations allowed per company.
The unions should form single
bargaining channel for negotiation
with the employer.
Employers are prohibited to pay full‐
time union officials.
(Effective As of July 2011)
Reasonable time‐off during working
Payment for full‐ Employers are not punished for hours is permitted for union officials
time union officials paying full‐time union officials. who carry out certain trade union
duties.
– Duties regarding employees’
difficulties, industrial safety and
collective bargaining.
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33. 2 Collective labor relations laws
Selective
Name The purpose of the Act
To maintain and improve working conditions, to improve the economic and social status of
workers by securing their rights of association, collective bargaining and collective action pursuant to the
Trade Union & Constitution, and to contribute to the maintenance of industrial peace and the development of the
Labor Relations national economy by preventing and resolving industrial disputes through fair adjustment of labor
Adjustment Act relations
It mainly deals with the principles of collective bargaining, labor disputes and their resolution, and unfair
labor practices
Act on the
Promotion of
To keep the peace in industry, and to contribute to the development of the national economy by
Worker
promoting the common interests of labor and management through mutual participation and cooperation
Participation and
Cooperation
To contribute to the security and development of labor relations by establishing the Labor Relations
Labor Relations
Commission and regulating matters as to the operation of the Commission in order to perform, in a prompt
Commission Act and fair manner, functions of adjudication and adjustment in labor relations
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34. 3 Employment policy & administration laws
Selective
Name The purpose of the Act
To improve the status of workers and to contribute to the development of the
Basic Employment Policy Act national economy by developing and improving employees’ abilities through conducting
vocational training for them
To attain employment security for workers and to contribute to the development of
a balanced national economy by affording workers opportunities for employment in an
Employment Security Act
occupation in which they may cultivate and display their abilities, and to satisfactorily
support the demands of the workforce as pertinent to industry
To prevent unemployment, promote employment, develop and improve the
vocational ability of workers, to strengthen national vocational guidance and job
Employment Insurance Act placement, to stabilize the livelihood of workers by granting necessary benefits when they
are out of employment, and to promote their job-seeking activities, thereby contributing to
the economic and social development of the nation
Act on the Collection, etc., of
To enhance the efficiency of insurance work by stipulating necessary matters
Premiums for Employment
concerning establishment and termination of insurance relationship, payment and
Insurance and
collection of insurance premiums, etc. for employment insurance and industrial accident
Industrial Accident compensation insurance
Compensation Insurance
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35. Labour Unions in Korea
Labor unions often have significant presence in organizations in Korea, both in
Korean local companies and in MNCs’ subsidiaries
When making any changes to the HR programs and benefits for non‐exempt
employees, companies need to negotiate with unions
In addition to HR program changes, many of companies still set the annual pay
increase based on annual negotiation with union
Discussions with unions often take a long time. It is not uncommon to see a
newly developed HR program suspended due to unions’ disagreement
Union’s impact on white color workers or experts are limited, whereas impact on
blue colors or operator level workers are huge
Pressure from Trade Unions are also significant and challengeable to employers
Proactive response by actively managing employee council or group in early
stage before forming union is important. Sometimes, paying more benefits and
compensation for no union is better than production lost by union issues in terms
of costs
‐ e.g. Samsung Group
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36. Trade Unions in Korea: FKTU & KCTU*
There are two major representative trade unions in Korea which are FKTU (Federation of
Korean Trade Unions) and KCTU (Korean Confederation of Trade Unions). KCTU is
known as more aggressive and difficult to deal with for employers in Korea
FKTU KCTU
(Federation of Korean Trade Unions) (Korean Confederation of Trade Unions)
Date of
March 10th 1946 November 11th 1995
foundation
Social reform and improvement of Promotion of employees’ rights and
Purpose
employees’ rights interests
Representation for national‐scale labor
Request for wage rise (Including legal
unions
minimum wage)
Enactment and amendment of LSA
Reduction of working hours
Major activities (Labor Standard Act)
Protection of employment stability
Protection of industrial safety
Secure employees’ right to organize and
Organizational reinforcement regarding
strike
labor disputes, collective bargaining, etc
Size** 725,014 members 658,118 members
* FKTU: Federation of Korean Trade Unions / KCTU: Korean Confederation of Trade Unions
** Source: Korea Labor Statistics, 2008
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37. 6. M&A in Korea
1 Korea in General
2 Culture of Korean business context
3 Talent and HR Issues
4 Benefits Practices
5 Labor Legislations
6 M&A in Korea
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38. Trend of M&A by Foreign companies in Korea
The number of OUT-IN M&A decreased but the amount increased while the number of OUT-OUT M&A
also decreased but the amount was on a similar level in 2009
M&A by foreign companies in Korea Key Findings
<OUT–IN M&A> <OUT–OUT M&A>
(Number) (KRW Trillion) (Number) (KRW Trillion) • The total number of M&A
50 47 5 50 48 150
involving foreign companies in
40 4 40
121.2 121.6
120 Korea decreased in 2009.
4.0
30
30 3 30 90
23 • The number of M&A that a
20 2 20 60 foreign company acquired a
10 1.4 1 10 30
domestic company decreased
but the total amount increased
0 0 0 0 by 4 trillion won in 2009.
2008 2009 2008 2009
Case Amount Case Amount
• The number of M&A between
<OUT–IN M&A : Acquirer’s Nationality> foreign companies also
(Unit: %) decreased but the amount was
2007 38.3 24.7 15.1 21.9 on a similar level
2008 40.4 17.0 17.0 25.5 • In OUT–IN M&A type,
companies from EU were
2009 34.8 26.1 21.7 17.4
ranked No.1 and USA came in
at second place.
EU USA Japan etc.
Source: Korea Fair Trade Commission, 2009
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39. Major Obstacles and Challenges for Successful M&A in Korea
The main obstacles for M&A in Korea are related to Human Resource matters
Major Obstacles for PMI in M&A Implication
Q. What are the main obstacles in PMI process, which •Management of Human Resource
can effect the M&A deal? related issues is the most important
factor in M&A
9%
–Downsizing : the difficulties in
targeting employee for downsizing &
26% union’s objection
–Integration of organization culture :
20% confliction between merging and
merged company in employee’s
behavior and corporate culture and
working style
• Also, sharing corporate vision and
integration business infra are deemed as
considerable factors
21% 24%
•To accomplish the maximized effect of
Dow nsizing, Retaining Key Talent Integrating culture M&A, Human Resource & Union related
Sharing corporate vision Integrating business infra issues are should be considered in first
Unclear Inforamation of merged co and in the most urgency
Source: Korea Development Bank Research Institute, 2007
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40. Key Success Factors for M&A in Korea
Plan for PMI, strategic goal and strong drive of top management are the key success
factors in M&A
To maximize the effect of M&A the process of after merge is more
important than M&A itself. Specially, Human resource matters such as
Plan for PMI
retaining the key employees and integrating culture are should be
considered and specific plans need to be made before M&A deal
Considering urgency and importance of employee issues, physical and
Strategic
emotional integration must be prolonged at least one year after
consideration with
completion of the deal. Strategic goal such as synergy and securing the
long term
elements of HR issues should be made with long term approach than just
approach
implementing simply integration of HR programs of acquiring company.
Watch out union matters and employees’ emotion about foreign
Due Diligence of companies. Especially, during DD phase, analyze previous union conflicts
people issue with target company, and also their reactions against deal and foreign
investors. Also, understand the differences of compensation type with
western countries, like seniority‐based pay system.
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Mercer 39
42. MERCER in Korea
Founded in 1991 (20 years of growth so far)
Largest # of clients, Extensive line of services and database,
Biggest # of consultants and Revenues from 2005 to so far
‐ Most of top 50 Korean conglomerates are Mercer consulting services clients
‐ More than 400 foreign invested companies are Mercer C&B services members
‐ More than 200 foreign invested companies are Mercer Retirement Pension
Services (Plan Design, Vendor Selection and Valuation) clients
‐ Helped HR DD/PMI for most of biggest M&A deals in Korea
‐ 7 lines of services: Human Capital Strategy Consulting, Risk‐Retirement‐
Financial Consulting, Information & Product Solution, M&A, Investment
Consulting, Investment Management and Health & Benefits*
‐ More than 60 c0nsultants whose average experience is 10 years in consulting
Has led HR globalization of top leading Korean companies: Most of new
westernized new HR system (Job – Performance – Competency based) of Korean
companies were introduced by Mercer
Has helped HR localization or global alignment of foreign invested companies in
Korea for 20 years
‐ Mercer is the only one HR consultancy who helped in eliminating Korean title
practices in several foreign invested companies
‐ Has provided diverse seminars and networking to HR professionals of MNCs
* Health benefits services are provided by Marsh, one of sister companies of Mercer, in Korea
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Mercer 41
43. For more information on regional strategies
Risks and opportunities
Visit our Breaking Down Borders
website to access articles, points of
view, podcasts and more information on
investing in Korea
www.mercer.com/breakingdownborders
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Mercer 42
44. Breaking down Borders webcast series
Doing business in India
Doing business in Japan
Doing business in China
Doing business in Korea
www.mercer.com/breakingdownborders
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Mercer 43
