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Title Evaluation of Public Institution Wage Policies

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Evaluation of Public Institution Wage Policies
December 30, 2016
Public Institution Evaluation Division of the Program Evaluation Bureau

   The government has recently pursued a rigorous wage policy for public institutions, aware that their seniority-oriented wage structure coupled with relatively high job stability have increased labor cost burdens and have given rise to complacence in the working environment. Ensuing policies have included a reduction in benefit expenses in December 2013, a wage cap system introduced in May 2015 and a performance-based salary system in January 2016. However, social conflicts are being aggravated over the question of whether it is feasible to uniformly overhaul the wage structure of public institutions in such a short period of time. Against this backdrop, based on an analysis of the current status of wage structures in public institutions, this report provides a review of the accomplishments and limitations of the recent wage policies pursued by the government.
   The Ministry of Strategy and Finance (MOSF) reduced the benefit expenses provided to employees of public institutions with the goal of cutting 1 trillion won in spending over 5 years. As a result, public institution employee benefit expenses in 2014 decreased by approximately 190 billion won. However, MOSF later pursued an inconsistent policy of making upward adjustments to the maximum allowance for employee benefit endowments by revising the 2015 Budget Setting Guidelines for Public Corporations and Quasi-Government Institutions. Meeting the general public’s expectations by insisting on cuts to an excessive benefit system yet allowing the expansion of employee benefits through endowments cannot be deemed consistent policy implementation.

   According to the Recommendations for a Wage Cap System for Public Institutions, all 313 public institutions have completed the introduction of a wage cap system linked to new employees in December 2015. This has apparently enabled the partial accomplishment of intended policy effects, such as 2264 new hires as of 3Q 2016. However,  it was determined that such changes were unable to contribute to increasing the productivity of public institutions due to the lack of effort to develop job duties for those with wage caps, while the issue of equity in cutting salaries was caused by failing to fully take into account the unique characteristics of each institution.

   In the 5 months since MOSF announced the Recommendations on the Performance-based Salary System for Public Institutions in January 2016, a performance-based salary system was introduced in 119 public corporations and quasi-government institutions. However, MOSF failed to provide sufficient and reasonable grounds as to why a performance-based salary system should be pursued, and there were concerns about side-effects due to its recommendation to introduce a rigorous and curved evaluation rubric. Furthermore, it was determined that the legitimacy of the system was not guaranteed because the performance-based salary system was introduced under a strict timeline.
   Based on such outcomes, this report proposes that there is a need to strengthen continued management and supervision of excessive or anomalous benefit packages, seek ways to transition to a job-based wage system through the peak wage system such as by developing job duties for peak-wage-eligible workers, and establish a reasonable performance evaluation system that ensures the understanding and cooperation of participants on an institutional basis.  

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