Domestic banks are among the first companies in Korea to adopt a peak salary system, which extends retirement age for senior employees in return for gradually reducing their salaries in the years leading up to retirement. They introduced the new arrangement one after another following an example set by Korea Credit Guarantee Fund in 2003.
But the new retirement scheme appears to have failed to take root at domestic banks amid a lukewarm attitude toward it among employers as well as employees. The banking sector’s experience is in contrast with the slow but steady increase in peak wage adoption among domestic manufacturing companies.
Currently, seven commercial banks run a peak wage program. Among them, Kookmin Bank and the Export and Import Bank of Korea are planning to abolish their schemes. At Industrial Bank of Korea, only eight employees currently work under an extended retirement age plan. Hana Bank and Korea Exchange Bank refuse to disclose how many workers have embraced the new retirement formula. Woori Bank and the Korea Development Bank have a relatively large number of employees participating in a salary peak plan ― 252 and 72, respectively. Shinhan Bank, SC First Bank and Nonghyup have not introduced such a program.
One reason bank employees shun the new retirement arrangement concerns the method of calculating severance pay. Currently, a worker’s severance pay is calculated based on the average of the salary he receives in the last three months before retirement. This formula puts participants in an extended employment plan at a disadvantage as his salary during the last three months before retirement would be smaller than that he received before applying for the plan.
Another important reason is the failure of banks to assign suitable jobs to the senior employees who applied for extended employment. In most cases, these employees are not allowed to continue the jobs they have been doing. Instead, they are offered jobs that they find discouraging.
These problems do not seem too difficult to fix. Regarding the severance pay issue, one solution may be to have aged employees retire and then rehire them. To enhance job satisfaction of these employees, banks should make sure that they are given new tasks that enable them to utilize their experience and expertise.
Banks need to make more systematic efforts to help their peak wage schemes take root. They should add momentum to the spread of the new system in Korea, which faces formidable challenges posed by population aging. Extending retirement age through the peak wage system is one way to help the nation cope with them.
According to a recent report released by the Ministry of Employment and Labor, the penetration rate of the new retirement scheme among Korean companies with more than 100 employees reached 12.1 percent last year. The growth pace is hardly impressive.
