The Trend of and Challenges Facing HRM Systems in Korean Firms

Korean economy and companies began to be exposed to many challenges from the 1990s. Economic growth turned from an expanding stage to a stagnating one. Globalization became a norm, and information and communication technology proliferated rapidly. Workforce compositions in old firms were transformed into a pot-type with mid-career employees comprising the main portion of the workforce. These environmental changes triggered firms’awareness that firms had to think differently about their ways of managing human resources. In particular, the 1997 Asian Financial Crisis provided a critical momentum for Korean firms to transform their HRM practices. This paper is to capture and examine the trend of HRM in Korean firms against main features of traditional HRM. 1)Traditionally, Korean firms in the past heavily relied on internal labor market along with lifetime employment. In such employment mode recruitment was conducted organization-wide only for the lowest entry positions on a regular basis, targeting new graduates. Another feature of the traditional HRM in Korean firms was that pay and promotion decisions were made mainly based on employees’ seniority. In addition, pay composition was characterized by a high proportion of fixed part of the total pay with various fixed allowances. Even bonuses were not linked to firm performance but fixed on an annual basis. The traditional HRM practices were rooted in the traditional culture which were characterized by several features such as collectivism, respect toward seniority, face-saving, and just cause and greater value on affective relationship rather than calculative one. In recruitment, position-based recruitment on demand targeting experienced workers began to spread, while, in selection, organizations have shown interest in systematizing selection procedures. In compensation, a performance-based pay practice called Yunbongje, in which individual differences in performance are reflected in their pay, and various incentive plans began to diffuse rapidly. Under the pay-for-performance plans, Korean firms have tried to increase horizontal pay dispersion between low performers and high performers. Meanwhile, in performance evaluation,performance and competencies began to gain importance in employers’ evaluating their employees. The trend can be characterized in nature by a shift from seniority-oriented HRM system to performance-oriented one, a shift from collectivistic HRM system to individualistic one, a shift from stable employment relationships to flexible employment relationships, and a shift toward reliance more on extrinsic motivation triggered by monetary incentives than on intrinsic motivation or loyalty to the organization. Human resource management in Korean firms faces some challenges. First of all, although the new trend in HRM systems is evaluated to contribute to short-term financial performance,long-term competitiveness of the firms has been allegedly hampered. Second, new performanceoriented HRM practices, which are rooted in American culture, are about to be defeated by cultural inertia. Third, the relationship between their HRM practices and the existing culture deeply rooted in their employees should be examined. Among others, collectivism itself is not necessarily against performance-oriented HRM. Rather, collectivistic HRM practices encouraging teamwork and cooperation among employees have been regarded as a key component of a high performance work system. Finally, the proportion of an ageing population being supposed to increase dramatically, a key problem most firms are to face is whether their current workforce management systems are sustainable or not under the new demographic environment. It is afraid that the new performance-oriented HRM systems might not be a sustainable HRM model in coming years. Sustainable workforce management models such as one in which a continuous learning system is incorporated need to be developed.