Mercer bdb doing_business_in_korea_dec_2010

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Mercer bdb doing_business_in_korea_dec_2010

  1. 1. Breaking Down BordersDoing business in KoreaAndy (Hyung Chul) ParkCJ Kim www.mercer.com
  2. 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 8392Mercer 1Mercer 1
  3. 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 KoreaMercer 2Mercer 2
  4. 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. 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 AreasMercer 4Mercer 4
  6. 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 infrastructureMercer 5Mercer 5
  7. 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 economyMercer 6Mercer 6
  8. 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. 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.Mercer 8Mercer 8
  10. 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.Mercer 9Mercer 9
  11. 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.)Mercer 10Mercer 10
  12. 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) FocusMercer 11Mercer 11
  13. 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. 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 operatorsMercer 13Mercer 13
  15. 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%Mercer 14Mercer 14
  16. 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 2010Mercer 15Mercer 15
  17. 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 2010Mercer 16Mercer 16
  18. 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) Mercer 17Mercer 17
  19. 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)Mercer 18Mercer 18
  20. 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 IncentiveMercer 19Mercer 19
  21. 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 KoreaMercer 20Mercer 20
  22. 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 unemploymentMercer 21Mercer 21
  23. 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)Mercer 22Mercer 22
  24. 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 1Mercer 23Mercer 23
  25. 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 s① 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 1,939,412adopted ERSA② 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) Mercer 24 Mercer 24
  26. 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. Mercer 25 Mercer 25
  27. 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)  Mercer 26 Mercer 26
  28. 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 KoreaMercer 27Mercer 27
  29. 29. Labor Laws of KoreaLabor 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.Mercer 28Mercer 28
  30. 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 Mercer 29 Mercer 29
  31. 31. Key contents in Labor Standard ActVarious terms regarding working conditions exist in the Labor Standard Act to protect therights 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 unusedMercer 30Mercer 30
  32. 32. Recent changes in Labor Standard Act (2010 & 2011)Two recent major changes in Labor Standard Act are ‘Allowance of multiple union representations’ inone 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. Mercer 31Mercer 31
  33. 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 Mercer 32 Mercer 32
  34. 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 Mercer 33 Mercer 33
  35. 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 GroupMercer 34Mercer 34
  36. 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, 2008Mercer 35Mercer 35
  37. 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 KoreaMercer 36Mercer 36
  38. 38. Trend of M&A by Foreign companies in KoreaThe number of OUT-IN M&A decreased but the amount increased while the number of OUT-OUT M&Aalso 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, 2009Mercer 37Mercer 37
  39. 39. Major Obstacles and Challenges for Successful M&A in KoreaThe 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, 2007Mercer 38Mercer 38
  40. 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.Mercer 39Mercer 39
  41. 41. Questions?
  42. 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 Mercer 41 Mercer 41
  43. 43. For more information on regional strategiesRisks and opportunitiesVisit our Breaking Down Borderswebsite to access articles, points ofview, podcasts and more information oninvesting in Koreawww.mercer.com/breakingdownbordersMercer 42Mercer 42
  44. 44. Breaking down Borders webcast series Doing business in India Doing business in Japan Doing business in China Doing business in Koreawww.mercer.com/breakingdownbordersMercer 43Mercer 43
  45. 45. www.mercer.com

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