Seoul Journal of Business

Volume 10, Number 1 (June 2004)

Transformation of Korean HRM based on

Confucian Values

Jong-Tae Choi*
College of Business Administration
Seoul National University

Abstract

This study aims to find out the role of the Confucian family value in
the process of the transformation of Korean HRM and IR in a hyper-
competition period. I analyzed the characteristics and the
transformation of Korean companies’ HRM as well as the core value
system of Confucian familism. I suggest that a successful
transformation of HRM in Korean companies requires an interplay
between two factors. First is the genetic factor based on traditional
Confucian culture of Korea (i.e., the DNA of Korean HRM), of which its
advantages must be respected and preserved. Second factor is an
adaptation ability, which modifies its own core competency and routine
through an interaction with the environment.
Korean HRM stands at a turning point now. The Korean economy is
facing a hyper-competition in the global market. To survive, Korean
companies have to improve their competitiveness. Also they must solve
the problem of seniority-based HRM of Confucian values that hinders
their competitiveness.
To confront an inevitable transformation of the management system,
Korean companies tried to solve the problem by bringing in a rapid
growth process of North American HRM practices. But, unanticipated
side effect has occurred in this process. As American HRM was
uniformly adopted, traditional teamwork, organizational loyalty, and the
advantages of traditional Korean companies were damaged. So many
companies have shown a problem of decreased organizational
effectiveness. In the case of employment relations, the rapid layoff and
an increase of temporary workers via organizational restructuring have

* Professor of Human Resource Management, Seoul National University

([email protected]).
This research was supported by the Institute of Management Research,
College of Business Administration, Seoul National University.
2 Seoul Journal of Business

caused an increase of transaction cost of labor because of union

resistance. These kinds of mistakes were caused by a culture clash
between Korean corporate reality based on a Confucian tradition and
American management policies.
But some companies, which have maintained traditional HRM
characteristics, maximized the advantages of Confucian ideology and at
the same time have adopted HRM policies based on performance in
their own way. These companies succeeded in the transformation of
HRM with less conflict with their labor union.
Therefore, we need to pay an attention to the genetic factors of Korean
HRM practices in order to understand and achieve successful
transformation of Korean HRM practices.

(Keywords: Confucian familism, transformation, Korean HRM, genetic

factor, adaptation ability)

I. Introduction

The Confucian culture of the East Asian countries is deeply

rooted in Korea as well as China and Japan. Traditional Korean
society, since the introduction of Confucian teachings from
China at about 4 century AD, has always been family-centered
and family-dominated. As Confucianism values much of a
family, there are strong family-oriented characteristics in the
corporate world of East Asian countries. This sociocultural
infrastructure (Choi, 1976) prescribes the characteristics of
human resource management (HRM) and Industrial Relations
(IR) in Korea.
The ideology of the Confucian familism is a paternalism that
forms the characteristics of the relationship among family
members as hierarchical and vertical one. And the paternalistic
authority relations regulates the family order. In relationships
such as husband and wife, and in the case of father and
children, subordination and control were essential bases of the
relationship and not reciprocal as in many Western countries.
This study aims to find out the role of the Confucian family
value in the process of the transformation of Korean HRM and
IR in turbulent periods. Specifically, my goals in this study are
threefold. First of all, I will summarize the core value system in
Confucian familism which has affected Korean corporate
community and specific HRM practices. Second, I will analyze
the characteristics of corporate community and HRM based on
 Transformation of Korean HRM based on Confucian Values 3

the Confucian family values. Third, I will provide arguments of

Korean Confucian corporate community and HRM for the new
trend and transformation of Korean HRM, so that I can finally
examine how Korean HRM would be changed with the change of
competitive corporate environment.

II. Confucian Family Values and Business

1. Confucian Family Values

1) Confucian Background
Throughout the past 600 years, Confucianism was the official
political ideology of the Chosun Dynasty, which ruled Korea
from 1392 to 1910. Confucianism provided a useful ideology for
maintaining a stable society. It spread out its roots within the
society and soon became very powerful. It worked its way deep
into the Koreans’ minds, their ideas and customs. In the period
of Chosun Dynasty, studying Confucianism was the only way to
become a government official and to satisfy the desire for status
ascending. So the knowledge of the classic teachings of
Confucianism was not only the norms that regulated the social
order and institutions but also the pragmatic means that
guaranteed the success of one’s family and the life of the
establishment. Therefore, living with the Confucian principles
was an unconditional necessity for every family. For
Confucianism the elements of a “good” society were: charity,
property, wisdom and deep respect. Those standard elements
were not universally valid, but they were well applied to a
particular frame of a fixed social relationship.
The base of practical moralities of Confucianism is so called
“Sam Kang O Ryun”, namely the three fundamental principles
and the five moral disciplines in human relations. The three
fundamental principles are the rules of conduct that must be
followed between father and son, sovereign and subject, and
husband and wife. The five moral disciplines principles—
affection between father and son, loyalty between sovereign and
subject, distinction between husband and wife, order between
the young and the old, and faith between friends—must be
maintained. All of them demonstrate the order of human relation
4 Seoul Journal of Business

and a hierarchical order in a society based on family system.

The basic virtue of Confucian family ideology is the “Hyo”
concept, meaning “filial piety” showing admiration and
obedience to one’s parents. In a parent-son relation, the son
must obey the father with absoluteness. Even after his marriage,
he must serve the father with his wife and must always put his
father before his wife.
But it’s not an one-way relationship but a reciprocal one. The
father has a bond to support and protect his son and the whole
family. And the son must obey the father with absoluteness and
the son has a duty to serve his father after his father’s
retirement. Hence, the organizations in the society under the
Confucian culture are ruled by the traditional authority
relations, that is, the protection-loyalty relationship. It is the
same relationship that exists between the employer and the
employees in the company. To understand the characteristics of
the Korean corporation systems properly, it is very important
that all these rules are based on family system and its ideology
(Redding, Norman, and Schlander, 1994; Dore, 1973). Hence,
Confucian philosophy emphasizes primarily on following the
social relations within a hierarchically organized society based
on family ideology.

2) Paternalistic Family Ideology

Familism in the Confucian civilization area such as Korea,
Japan and China has distinctive characteristics compared with
Western community. As the fundamental unit of the society is
the family rather than individuals in the premodern period of
East Asian countries, we can still find strong collectivistic
traditions even in these individualistic modern times. And those
family-oriented community ideology in East Asian countries
owed much from Confucianism that stressed the kinship of the
family as a basic unit of society. As the family being the most
important and basic entity of the traditional Korean society, it
has to be analyzed more deeply in order to understand its
characteristics.
The strong family tradition has economic aspects, as well.
When a family member is thrown out of work, the family system
absorbs its unemployed member until his or her getting a job.
The economic expansion and contraction of the labor market
 Transformation of Korean HRM based on Confucian Values 5

were balanced through the elasticity of the social structure in

releasing workforce and absorbing the unemployed, its basic
element being the extended family.
It is remarkable that the obligation for mutual help, especially
for the elder parents, existed within the extended family and still
continues to exist. There are too few convalescent homes in
Korea. The elder parents are primarily to be cared for within the
family. Even between relatives, there is an obligation for mutual
material help. The more sons a family has, the better is the
security for the aged parents and the more certain is the
continued existence of the extended family.

2. Business as Family-Oriented Corporate Community

1) Paternalistic Management
As mentioned earlier, the family system was the basis of the
traditional social values of Koreans. In the same way, the
traditional family values and concepts serve as an ideological
basis to determine the relationship between employer and
employee. Management began to praise the advantages of the
traditional family ideology and emphasized on being able to solve
problems much better when relying on the family concept of
goodwill and mutuality instead of depending on worker
legislation and labor movement. It stressed on building the
relationship between employers and employees in the factories
after the model of the relationship between parents and children
in the traditional family system.
The traditional family ideology served as a constitutional
principle for the organization so that the workers identified
themselves with corporate and remained loyal (Choi, 1974).
Such a family-oriented corporate community was regulated by
the paternalistic authority relations. Corporate was seen as a big
family in which management played the role of the benevolent
“father” whereas the employees accepted their obsequious role
as “children”.
Thus managements developed human resource methods
according to the principles of the family ideology. The lasting
relation with the company, difference of status based on the
length of employment at the company, and the interest of the
company in personal affairs of the employees are based on the
6 Seoul Journal of Business

concept of the unique Korean family tradition and is praised as

particular advantages of the Korean corporate system.

2) Family-Oriented Corporate Community

The family-centered ideology of Confucianism has made
Korean corporate community. So called corporate familism made
many Korean companies to be managed like community. The
successful Korean companies have established and maintained
the family-based ideologies and rules, and have cared their
employees as their family members.
Employees respected managers much as they would respect
their own fathers. Reciprocally, managers considered their
employees like family members, trying to take care of employees
as much as possible.
Corporate community ideology did not indicate their
relationship with employees just as an employment contract but
considered the relationship with employees as a corporate
community that could not be artificially cut off. Therefore, the
companies did their best to make themselves like a family. To
materialize this the companies provided many activities. The
employees also expected a corporate community at work and
they liked it when the top manager pr ovided such an
atmosphere. Consequently, employees usually did not change
their jobs even if the company fell on hard times. They stayed
with the company so that it could recover, and get back on their
feet.
To obtain the feeling of the corporate community, each
company had its own corporate strategy. Here are several
examples of common strategies that companies adopted. First,
the company provided a sense of solidarity among employees at
work so that they felt like members of family. Second, the
company tried to form firm consciousness to build trust and
understanding between employees and the company. Third, the
company attended to individual celebrations. Fourth, the
company had social relationships with employees besides just
the working relationships. These company policies helped create
an atmosphere that brought labor and management into a
corporate community.
 Transformation of Korean HRM based on Confucian Values 7

III. The Characteristics of Traditional HRM Practice of Korea

Three characteristics of HRM practices have been found as the

basis of Korean companies as a corporate community. These are
the structural attribute of HRM practices—vertical interaction
based on harmony ideology with paternalistic leadership— and
the two functional practices—long-term employment and rigidity
in layoff, seniority-based wage and promotion.

1. Vertical Interaction Based on Harmony

In order to keep a collective subordinate relationship in

traditional Korean society, a concept of harmony was heavily
emphasized. In Confucianism, harmony was also considered an
important ideology to control the members of the group. To keep
a subordinate relationship within the group, the leader
emphasized harmony and tried his best to keep it within the
group.
The East and the West have different values in their social and
cultural orientations. The oriental human relationship is a
reciprocal action of family-oriented authority and warm vertical
relations based on a balance of the positive and the negative
forces that ground from Confucian social principles. Therefore,
the concept of “oriental harmony” always lies in its base.
The Eastern human relationship (of Korea, China, Japan) sets
a conflict-free condition as its premise. The regulation and the
structure of the organization not only discourage conflicts, but
endow it with a negative meaning. Counter-offer, negotiation and
compromise, the products of conflict, are considered a betrayal
to values such as harmony, unity, principles, and purity.
More specifically, there is a big difference between the
horizontally reciprocal style based on conflict of the West and
the vertically reciprocal style based on harmony of the East.
Then what is the horizontal reciprocal style of the West which
sets conflict as its premise and which is based on individualism?
To understand the formation of such a society, we have to
understand what “conflict” is.
Conflict, in general, has both destructive and constructive
8 Seoul Journal of Business

aspect. It has an aspect that destructs the existing order and at

the same time, a constructive aspect of solving problems in a
new dimension.
The Western society, which is based upon individualism and
conflict, has the ability to understand conflict and to pull it up
to a creative dimension. Therefore, in the Western society,
conflict is good, and negotiation and compromise for the conflict,
are considered as necessity. They believe that they might reach a
new dimension through conflict and that there is development
where there is conflict. They hope for conflict because conflict
can become the force behind development. If conflict doesn’t
sur face and becomes latent, the society will not escape
stagnation, and when conflict accumulates, it will change into a
riot that threatens the social peace.
Then, what is the vertically reciprocal action based on
harmony and collectivism of the Orient? The representative
model of the oriental society, which is based on harmony, can be
found in a vertical relationship. The juniors are expected to
respect their seniors with the concept of filial duty and devotion.
In response, the seniors must take care and look after the
juniors with benevolence and sacrifice. The Eastern call such an
action of not being analytical but acting in holistic harmony
according to the concept of “harmony.”

2. Long-Term Employment and Rigidity in Layoff

It is a well-known fact that the Korean companies had much

residual human powers in the companies before 1997 foreign
exchange crises. That was caused by non-activated external
labor market. This is not only representation of Korean labor
market which must supply human resource inside the company,
but also practice of Korean employment.
Traditionally, Korean companies have maintained internal
labor market policy to recruit graduates from a distinguished
universities, namely ‘open recruitment’, and train them to be
warriors. Samsung Corporation, Korean representative company
that is Samsung’s subsidiary, recruited graduates openly since
1954 (Samsung, 1988). It was from 1961 for Hyundai Group’s
“open recruitment” to be a formal HRM practice (Hyundai is the
rival chaebol of Samsung). This kind of internal labor market
 Transformation of Korean HRM based on Confucian Values 9

policy is a critical characteristic of East Asian countries which

make use of catch-up policies. These countries loaned much
money, skills from developed countries and constructed factories
to become a developed country. As they didn’t have skilled
workers and crafts who for med basis on development of
traditional handicraft manufacturing and medium and small-
sized enterprises, they needed to hire unskilled labors like
peasants and train themselves to be adjust in organizational
factory life. This learning course for forming skill and labor’s
adjustment need to be invested on human resources for
companies.
Doeringer and Piore (1971) insisted that forming specific skill
in the company was a critical factor for building internal labor
market. Operating ‘public recruitment’ and job-training center in
Korea and Japan are results of regarding internal labor market
as an important matter. It also shows that Korea and Japan’s
companies prefer to long-term employment policy to layoffs.
There are intimate relations between the tradition of internal
labor market polices and traditional familism of Confucianism.
In the paternalist authority relations of Confucianism, the
r etention is the most important behavior which makes
employers to build the trust from employees. So the East Asian
countries like Japan and Korea have not only some rigid legal
standards on the layoff but also the very critical public opinions
on the layoff. The National Labor Relations Act of Korea is one of
the factors that make rigid layoff practice (Choi, 1996a).
In Korea, layoffs had been prohibited by law until 1997 when
the Labor Standards Law was changed and only the Court of
Justice had suggested a few rigid conditions. On 1997, when the
National Labor Relations Act was passed, the judical precedents
about layoff were changed into laws, and it made employers to
have less burden on layoff. In spite of this, in comparison with
USA and Europe, this standard still requires the rigid legal
formalities.
So far, one of the reasons of the rigidity in Korean companies’
layoff practice came from the cause that prohibited the layoff
without the right cause. But the revised cause provided less
rigid condition for the layoffs that the managements can execute
layoff under the condition of the authorized economic and
technical causes (continuing deterioration in financial
10 Seoul Journal of Business

Table 1. Comparison of Employment Practices

Layoff
Difficult Easy
Exit

Easy II: Korea, Germany I: U.S.A

Difficult III: Japan IV: Russia, China

Source: Choi (1996b)

performance, restructuring and technical innovation or change

of business domains).
In comparing Korean employment practices with the other
countries, exit (turnover) of employees and layoff need to be
examined as key factors of employment practices in regard to
labor supply and demand. Korean employment practice can be
analyzed as type II with easy exit and difficult layoff as seen in
Table 1 (Choi, 1996b). Employment practices of Korea and
Japan are long-term employment with difficulty in making
layoffs. But Japan’s exit practice is different from Korea’s in a
sense that Japan’s social inhospitality toward the turnover
prevents employees from leaving a firm.
People say in Korea, just like that of Japan, that a frequent
change of occupation is caused by lack of adaptation. Except
from the scout for special labor demand, the case that moves
from a big company to another is rare in both countries.
Considering the level of communal society between Korea and
Japan, it’s easy to anticipate the difference. But the real reason
that brings a gap may be more of an economic problem. This
comes from different levels of industrial development. Korea has
fewer companies that have stable and good condition to work
than Japan does. This proves that for Koreans, changing
occupation occurs in rather small company with a poor
condition.
Table 1 shows that characteristics of Korean employment
relations are not so negative about employees’ tur nover
culturally, but the restrictions on lay-of fs are str ong
institutionally. Even though traditional practice is a factor for
delaying organizational transformation and change, it is a factor
for developing external labor market because of low social
criticism and hostility of labor’s turnover. So Korean human
resource management of ficers must develop appropriate
 Transformation of Korean HRM based on Confucian Values 11

methods and understand characteristics of employment policy

for innovation of human resource management in the process of
globalization.

3. Seniority-Based Rewards

Seniority-based wage (Choi, 1993) and promotion is also one

of the characteristics of Korean employment practices that has
contributed to a long-term employment and a rigid labor market.
The underdeveloped competitive internal labor market has
become an obstacle itself to the creation of a flexible external
labor market (Choi, 1996b).
Usually, seniority-based system is known as one of the
characteristics of Japanese management. In Japan, seniority-
based system that is also called as ‘electrical machinery industry
style wage system’ formed its feature about 1949. The core of
electrical machinery industry style wage system is the
continuous increasing base pay, which enables employees to
lead their life in spite of increasing cost of living caused by their
own marriage, birth of their children, their children’s marriage
and so on. We call this system the life-time wage system.
Such limited Korean public organizations as Korean public
banks and Korean Electronic Power Corporation applied life-time
wage system to those who are under high-school only after
1970s when Korea set up Heavy chemical industry infra. In the
case of private organizations, it was the first case that some
heavy chemical factories applied it to male employees who had
high school degree. For them, not only life-time wage system was
offered but also dormitories, housing, restaurant and training
programs for skill. Between late 1970s and early 1980s heavy
chemical industry came to function well in Korean, when life-
time wage system became prevalent in Korea. A representative
corporation of Korean heavy chemical industry, HHI (Hyundai
Heavy Industries Co.) took regular employment system as HRM
system and bureaucracy as organizational form in 1979. Adding
to them it also took seniority-based system as HRM practice. But
it offered to high school graduate blue-collar minimum fringe
benefit that can maintain cost of life and morale and there were
obvious discrimination between blue collar and white collar in
terms of promotion, income and benefit.
12 Seoul Journal of Business

In case of bonus plan HHI offered it to each part in spite of the

difference of bonus size. HHI of fered fringe benefit more
intensively to white collar, while it offered blue collar more
intensively the benefit that have more direct relation with cost of
life, such as housing loan and educational expenses for their
children. Namely, fringe benefit was restricted only to white
collar. With these facts we can conclude the status as family
community was allowed only to white collar, namely that there
was definitely discrimination between white collar and blue
collar. This discrimination between white collar and blue collar
was something like discrimination between “sawon” and
“gongwon” of 1950s in Japan. In Korea this kind of
discrimination became the most important issue of 1987 nation-
wide labor dispute, which was the core cause of conflict between
labor and management.
A previous study shows that the internal labor market’s
development processes of shipyard business, one of the Korean
representative industries, consist of three stages(Noh, 2002). The
first stage of Korean internal labor market was in the pre-1987
period. The year 1987 was the time of labor and management
upheaval. Until that time, labor movement was suppressed
under the dictatorship of development for economic development
and a large scale of skilled-workers were needed according to the
heavy and chemical industry advance. As a result, the minimum
internal labor market policies were driven by company’s needs.
The major policies include that active skill building by education
in internal job training course and operating the collective
residence facilities or the restaurant in factories for long-time
works. Also it was included that the fringe benefits to motivate
employees. The second stage was the result fr om the
transformation of HRM occurred by labor movement’s vitality,
institutionalization and power relation changes. In this period,
the major requirement of union was concentrated on industrial
democratization, labor position and life improvement. The
former need was related with union quotation, respecting
worker’s privacy, eliminating discriminations. The latter was
r equirements for wage increase and demolishment the
discrimination between officers and production workers. The
important argument about this discrimination is a single serial
step and promotion guarantee. The serial step is the major
 Transformation of Korean HRM based on Confucian Values 13

business practice policy supported long service pay system. The

third stage has been initiated by the managements in the name
of “management innovation” since 1990’s. It is urged by
worsening environment of competition and open doors pressure
of globalization and is in process now.
In Korea, long-term service system was generated after 1987
because of labor movement vitalization. During labor struggle in
1987, the organizational reinforcement and the institutional
stability were attained by democratic union. This strong union
prohibits employer’s will to layoff and provides the long-term
employment system. Also internal labor market was improved by
this union according to agreement of single serial step. Because
the improvement of employee position was accomplished,
improvement for productivity increase was not achieved.

IV. Transformation of Korean HRM

1. Globalization and the Asian Financial Crisis

To overcome the currency crisis of foreign exchange and

financial crisis in late 1997, with the IMF relief loan support,
positive structural arbitration by IMF program was implemented
in this period. This period was a critical moment for the new
step forward.
Korean economy, at the year of 1995, was changing from high-
rate growth to stabilized growth. This implies Korea was taking
steps for the new advance and facing the challenges in
globalization, market opening, the extreme competition chased
by advanced countries and China.
Globalization pressure was accelerated thr ough Plaza
Agreement in 1985, UR in 1986, GATT system and launch of
WTO, therefore Korean companies were forced to find out its
survival route through Business Administration Reform.
Korea’s conglomerates are pursuing business administration
reform strategy for the improvement of productivities through
such as inducing of new personnel system, structural reform in
organization and human resource, and reengineering. A sudden
impact of globalization trend in the Korean economy came as the
bilateral agreement such as UR as a result of the collapse of
14 Seoul Journal of Business

East Europe and Soviet Union and New GATT System.

This pressure is applied to all international trade industry and
reinforced according to the enlargement of international
regionalism such as EU, NAFTA and selective protected trade
organization. Korean companies are taking a reform in HRM to
the customary protection and practical affairs in addition to
structural reform and technology innovation to go through the
competition and market opening pr essure entailed by
globalization.
Therefore, many of companies launch to induce HRM system,
which is flexible to market situation and American practices,
which is endowing a salary and position by the individual
capacity and contribution. In terms of “employment” and
“compensation” in HRM, Korean companies had shifted their
seniority model to outcome model in 1990’. The practices of
American HRM are the global standards, what Koreans call. The
transformation of HRM is occurring widespread inducing the
incentive system such as a yearly stipend, profit and gain
sharing, stock option and breaking a traditional permanent
employment through hiring temporary workers, recruiting
employees with qualified backgrounds and experiences, and
aggressive promotion.
In the face of globalization challenge, the notable response
that Korean government had taken was a public discourse in
1995 and revision of labor law in March of 1997. After president
Young-Sam Kim published “New Industrial Relations Ideas” in
April of 1996, the Industrial Relations Reform Committee was
established. At that time president Young-Sam Kim proposed
several issues for industrial relations reform such as principle of
maximization of labor-management’s co-goodness, principle of
participation and cooperation, principle of autonomy and
responsibility, principle of education and human orientation,
principle of globalization of institution and consciousness.
The orientation of revised Labor Law was summarized in two
trends. First was the abolishment of unequal clauses that had
restricted collective industrial relations correspondent to social
democratization. Second was revision of Labor Law for
increasing employment flexibility and supporting for industrial
democratization to prepare for globalization. As a result, several
detrimental clauses of Labor Law were eliminated such as
 Transformation of Korean HRM based on Confucian Values 15

prohibition of the plural number union, prohibition of the third

party intervention, prohibition of union’s political behavior. And
to increase employment flexibility, new clauses on layoff and
flexible work time was enacted.
The Labor Law is revised through consensus of tripartite
(Labor-Management-Government) and government party and
nongovernment party in Congress. So the procedural legitimacy
is acquired. And the contents in revised Labor Law are evaluated
as the second best in that point guarantee labor basic rights,
endowing social responsibility with labor activities and
increasing labor flexibility prepared for globalization.

2. New Trends

1) Increasing Flexibility in Employment

Since the foreign exchange crisis, Korean companies have
experienced broad and fundamental transformation resulted
from globalization (Kim and Briscoe, 1997). First of all, the
traditional employment practice that characterized long-term
employment and high organizational commitment is disturbed.
The large Korean companies hire college graduates twice a year
through interviews, reference checks, and a test of knowledge in
management, English and common sense. Recently, some
chaebols (conglomerates) dropped “the knowledge test” or
replaced it with an aptitude test (Samsung, Hyundai), but many
companies still use the knowledge test as a screening tool (Kim
and Briscoe, 1997; Kim, 1997). New employees go through four
weeks’ in-house training in Samsung, staying at the firm’s
training center. There are big dif ferences in other large
companies. Korean companies put a strong emphasis on
employee training and most have their own training centers. The
purpose of the significant length of training is to transform naive
college graduates into “warrior workers” loyal to the organization
(Kear ney, 1991). The atmosphere of training is heavily
influenced by the military culture.
Trainees learn the history, organization, and vision of the
company and also learn the company song. Technical training
and general management education are also provided, but less
emphasis is placed on this type of training during this period.
After the trainees begin their work at assigned firms, they
16 Seoul Journal of Business

receive extensive technical and management training. The large

companies place emphasis on ongoing employee development
and provide a variety of training programs (Steers, Shin, and
Ungson, 1989).
However, these days, not only recruiting the entry level
workers but also hiring the experienced worker proportions
increased. This is related with reducing the workforce policy. In
high-rate growth period before, securing surplus workforces are
considered flexibilities demand in enterprises. One of the policies
of HRM in low-rate growth period is rather to allocate the
experienced workers in necessary position to training surplus
workforces.
And in IMF supervision, enterprises, through the big
structural reform, dismissed over-employed human resources.
During this period, the financial institution dismissed the
employees in various methods about 40per cent, and voluntary
turnover in chaebol is appeared for the first time. In the past,
employees’ voluntary turnover in chaebol was almost 0per cent.
In fact Korean companies had achieved rapid growth through
retaining and educating slack employees for new business, so
they are considered key resource to response with new
opportunities. This is the reason that exercises large public
recruitment system.
But in turning point in 1995, Korean economy confronted the
trend of low growth, and slack employees for new business
became target of layoff. That is, large public recruiting and
education system is effective in management environment of low
labor cost and high growth rate, but that system is not more
effective in high labor cost and low growth rate because of the
pressure of high cost. So the recruiting practice, which
emphasized on new graduates, changed to adapt recruiting on
demand, recruiting experienced workforce, scouting and open
recruiting CEO. The use of contingent work is increasing. This
means family oriented community focused on full workers is
changing too. In fact the use of contingent workers has been
constrained at any low rate because of full workers’s morale
decline, anxiety to security, cultural conflict between the two
groups. But the rate of contingent workers had increased during
the revision of Labor Law in 1997 and IMF bail-out period (Table
2).
 Transformation of Korean HRM based on Confucian Values 17

Table 2. Trend of Contingent Workers Ratio

1988 1992 1996 1997 1998 1999 2000.8

ratio(%) 44.3 43.1 43.3 46.1 47.2 51.7 58.4

Source: Korea National Statistical Office (2001).

Note) contingent workers = temporary workers (contract term under one
year) + daily workers (contract term under one month)

In employment perspective, recruiting full time workers is

replaced by recruiting contingent workers. And as layoff clauses
in Labor Law is legislated in 1997, Korean companies begin to
exercise layoff that has been strictly constrained ever before.
With these situations, traditional practice disliking turnover is
collapsed. And as workforce flexibility increased, long-term
employment in entering firm is replaced by long-term job based
on employability.
Also employee perceived the significance of life-time
employability than life time employment, and movement of
workforces is enlarged to for higher pay, better work
contingents, and career development.

2) Diffusion of Performance-Based Pay (Compensation)

Traditionally, employee compensation has been determined
mostly by seniority. Recently, according to a comprehensive HR
survey, performance has emerged as an important factor as
firms try to increase productivity by rewarding performance.
The new trend in compensation is the enlargement of
performance-based pay. In the old system, the compensation
package (not including benefits) had three components: basic
salary (50 per cent of the total), allowances (10 per cent) and
bonus (40 per cent). The level of basic salary and allowances
depended mainly on the position and seniority, and the bonus
relied on the performance of the firm. The bonus has been
frequently compared to profit sharing in western enterprises.
They are similar in that both are group incentives—that is,
everyone receives them—and both depend on the performance of
the firm. Yet a big difference is that large companies pay
bonuses four to six times a year (bi-annually in most Japanese
firms), each time in the amount of several months’ basic salary.
18 Seoul Journal of Business

If the performance of the firm in any given year is better than

the average year, then employees receive more bonus payments.
However, due to the free rider problem and inef fective
performance appraisal system, it is questionable whether the
bonus provides any noticeable incentives for the employees.
Because of the ineffectiveness of bonuses and the lack of
individual incentives in the old compensation system, Samsung
deter mined that its existing system did not encourage
individuals to perform at a high level.
Thus the new HR policy introduced a heavy dose of individual
incentives into the basic salary. The new system divided the
basic salary into two components: base pay and performance
pay. The base pay depends on position and seniority, but the
performance pay depends on individuals’ performance ratings.
The proportion of performance pay in the basic salary is 68 per
cent for the managers, 64 per cent for senior associates and 42
per cent for junior associates. As the numbers indicate, the
variable portion is greater among employees in higher ranks.
Determination of allowances and bonuses are the same as
before. Thus the characteristics of the new compensation
scheme are the introduction of individual incentives and the
higher variability of pay among employees in higher ranks.
First of all, the dramatic change in Korean HR practices is the
trend of adaptation of annual salary system. In generally
American global standard, what is called, refers to annual salary
system. That is the representative system of performance-based
HRM. Since IMF crisis, Korean companies intensively introduced
annual salary system. As we identify Table 3, the annual salary
system has increased dramatically from 1.6 per cent in 1996 to
32.3 per cent in 2002.

Table 3. Trend of Adaptation of Annual Salary System

1996 1997 1999 2000 2001 2002

Adapting 94 205 649 932 1,275 1,612

firm(ratio) (1.6) (3.6) (15.1) (23.0) (27.1) (32.3)

Sample
5,830 5,754 4,303 4,052 4,698 4,998
Size

Source: Ministry of Labor (2002).

 Transformation of Korean HRM based on Confucian Values 19

Table 4. Trend of Adaptation of Flexible Bonus System

1996 1997 1999 2000 2001 2002

Adapting 334 405 689 833 1,025 1,172

firm(ratio) (5.7) (7) (16) (20.6) (21.8) (23.4)

Sample
5,830 5,754 4,303 4,052 4,698 4,998
Size

Source: Ministry of Labor (2002).

With annual salary, another performance-based pay is flexible

bonus system. Already Korean companies have exercised the
bonus system based on seniority rather than performance. That
traditional bonus system is fixed pay, not variable one. But
recent bonus system is changing to performance-based system
such as special bonus, profit sharing, gaining sharing, stock
distribution based on performance. Especially many companies
hire very competent CEO from outside, endowing them stock
option, and it is noticed by mass media. As showed Table 5, the
trend of flexible bonus system has more increased from 5.7 per
cent in 1996 to 23.4 per cent in 2002.
The rapid proliferation of annual salary and incentive system
is appropriate evidences that transformed from seniority-based
compensation to per for mance-based one in Korean HRM
practices. This is the result of compound interplays between
effects of globalization, IMF crisis in Korea, and the succession
of CEO in Korean companies (Tushman and Romanelli, 1985;
Romanelli and Tushman, 1994).

3) Reform in Evaluation
In the old system, not much attention was paid to
performance appraisal because performance ratings did not
affect promotion and compensation decisions in a meaningful
way. Promotion was based on seniority and there were no
individual incentives in the compensation system. This caused
management as well as employees to take per for mance
appraisals as an annual—but irrelevant—formality.
Under the new HR policy, however, pr omotion and
compensation came to depend heavily on performance ratings.
To make the appraisal system fair and trustworthy, substantial
20 Seoul Journal of Business

changes were made (Kim and Briscoe, 1997).

First, supervisors are required to keep a diary (“Manager’s
Note”) on the performance, grievances, and improvement needs
of employees. This is to help raters to consider employees’
activities and performance over the entire evaluation period.
Also supervisors are encouraged to share the diary with the
employees to communicate expectations, provide timely
feedback, and increase the credibility of the performance
appraisal.
Second, a 360-degree evaluation was introduced. Evaluators
now include supervisors, subordinates, customers, and
suppliers. The multi-rater evaluation was implemented first for
the manager group and will be expanded to the senior group.
Third, a mandatory appraisal interview was introduced.
During the annual “Appraisal Week” two rounds of evaluations
and interviews are carried out. In the first r ound, the
performance evaluation is done through an interview with the
supervisor. In the second round, a capability evaluation is
performed through another interview with the supervisor.
Through the interviews, employees and supervisors exchange
and discuss evaluations, and adjust dif ferences in their
opinions. Then they agree on the final ratings and sign the
document.

3. Globalization and Tradition

However, we do not neglect the fact that a lot of companies

have maintained a traditional HRM practice in spite of the
introducing an American management style. It is arbitrary that
not following the trend is regarded as selection not adjusting to a
new environment. The issue is the one of common controversies
in the academic and practical circles that Korean companies

Table 5. All Types of Annual Salary Plan

Transformed merit pay American merit

Seniority
(mixed type) pay

60.7% 13.6% 19.7%

Source: Ministry of Labor (2002).

 Transformation of Korean HRM based on Confucian Values 21

have to accept a global standard, American management style or

keep their own ways like Japanese companies. According to the
chart issued by the Korean Ministry of Labor in 2002, the
Korean annual pay system is transformed merit pay mixing
American merit pay and seniority. On the other hand, American
merit pay type occupies little portion.
We do not decide that transformed merit pay system is a
creative form reflecting Korean companies’ situation or unfitness
to a new institution as conservative attitude. But a definite thing
is that American merit pay system is not better than
transformational merit pay. Moreover, these transformations in
the Korean top companies have happened positively. We can find
the cultural differences between Western and Eastern “lay-off”.
Namely, Korean companies prefer to do an early retirement
paying considerable incentives rather than do a daring lay-off in
U.S. Through the early retirement programs, Korean firms
targeted senior employees and forced them to take early
retirement (Choi and Kim, 1997). These efforts are made by legal
containments to lay-off as well as cultural characteristics
considering company community collectivism and employees’
spirit, loyalty. Actually, because some Korean companies
accepted the American HRM practices as a global standard
based on a performance without deep consideration, they are
faced with a deep conflict in organization, increase of transfer
rate, weakness of loyalty and spirit. For instance, the practices
excessively based on excessive performance in compensation
such as increase of individual grading, only monetary
compensation, appraisals focusing on a short term, only
appraisals for visible financial per for mance damaged
organizational teamwork and productivity. And large lay-off and
employment of irregular workers in employment management
made a embarrassing transaction cost and labor disputes.
On the other hands, these phenomena are regarded as
temporary resistance of traditional Korean values (Confucian
collectivism) against short-term widespread American merit pay.
Because culture cannot be changed easily, the processes of
American merit pay applied to Korea are made by harmony of
traditional Korean culture for high performance. In fact, there
are a lot of cases that the companies mixing seniority and
performance-based HRM carry out low labor disputes and HRM
22 Seoul Journal of Business

system innovation. Among Korean famous chaebols, these

companies keeping good relationship to employees achieved
successively performance HRM for competitive power and
modified steadily. That is, traditional Confucian familism values
contributed not to resistance of new transformation but to
success through employees’ family, partner cooperation for
innovation, and decreased transaction cost accompanied by
transformation. In a word, the companies mixing inherited
advantages of corporate community values based on
Confucianism and performance-based HRM to globalization
environment stand out as competitive power one without severe
labor disputes.

V. Conclusion

Korean HRM stands at a turning point now. The Korean

economy is facing hyper-competition in the global market. To
survive, companies have to improve their competitiveness. Also,
they must solve the problem of seniority-based HRM that
hinders their competitiveness. So while considering American
style performance-based HRM, Korean companies have to
search for the Korean HRM based on their own situations.
In fact, the main point of Korean companies’ HRM point is
mixing traditional cultural characters and new environmental
change of globalization. Korean companies have improved
rapidly through government’s economic development plan since
1970. This growth is based not only on progressive
entrepreneurship but also on the Korean HRM of Confucian
familism that made efficient human resource management
possible. However, because Korean companies did not change
seniority-based management style responding to new
environment, they fell into competency traps.
Korean companies had grown rapidly through seniority-based
HRM practices activating Confucian familism. But it became an
obstruction under changed environment-globalization. So
Korean companies have to introduce incentive system for
employment flexibility and individual creativity to respond to
more competitive environment-globalization. Many companies
started introducing so called “New HRM” in the early stage of
 Transformation of Korean HRM based on Confucian Values 23

1990’s. It includes assessment system, compensation based on

per for mance, incentive system, slimed team, recruiting,
promotion system irrespective of the academic background
(Park, 2001). Introducing American-style HRM practices as a
global standard without considerations in advance, Korean
companies faced the foreign currency crisis in 1997, because of
an objection of activated labor union since 1987 and easygoing
attitude of management in 1980.
There are big differences between a effort for changing HRM in
foreign exchange crisis and that in the early stage of 1990’s.
Corporate attempts to adapt to the environmental changes were
intentional efforts in early 1990s, but IMF relief financing
program and follow-up measures were forced upon Korean
companies in foreign exchange crisis. During IMF management
period, American policies were introduced as a global standard.
For instance the early retirement, big lay-off, merit pay system,
stock option and so on were operating. In this period, corporate
intention to renovation was strong. And the public opinion’s
supports and the social consensus toward change minimize
labor union and employee resistance to innovation. As a result,

Table 6. Past and Future of Korean HRM

Characteristics Characteristics in the

in the past transformation
Employment Open employment for new Extending occasional
employee employment focusing on the
Focusing on full-time experienced
workers Lay-off
Long-term employment Frequent use of contingent
workers
Reward Reward based on seniority Extend reward based on
per for mance and ability
(group incentive)
Promotion Promotion by a salary and Extend promotion by
job class performance and ability
Evaluation Evaluation based on Extend evaluation based on
internal competition for market competition for
promotion and reward achieving corporate goal
24 Seoul Journal of Business

HRM system is transforming just like Table 6.

Confronting inevitable transformation of the management
system, Korean companies tried to solve the problems brought
in a rapid growth process with American HRM practice. But
unanticipated side effect has occurred in this process. For
example, there were the increase of individual discrepancy in
reward management, focusing on monetary rewards and
incentive, thought quantitative financial performance, and
evaluation focusing on short-term performance.
As American HRM was unifor mly adapted, traditional
teamwork and organizational loyalty, the advantages of
traditional Korean companies, were damaged. So many
companies represented low organizational effectiveness. In
employment relations, the rapid layoff and extent temporary
workers according to restructuring occurred too heavy
transaction cost of labor because of union resistance. These
kinds of mistakes were caused by cultural conflicts between
Korean corporate reality institutionalized by Confucian
traditional and American management policies. Though the
transformation of HRM was necessary, strong conflicts occurred
in the process. As a result, settlement of American policies was
delayed.
But some companies that maintained traditional HRM
characteristics maximized the advantage of Confucian ideology
and also adapted HRM policies based on performance by their
own way. These companies succeeded the transformation of
HRM with less conflict with their labor union. Many evolution
theorists declared that organization must not only reproduce
core competency such as production and organizing capability
and routines but also modify them through interacting
environment for survival of continuous evolution (Nelson and
Winter, 1982; Baum and Singh, 1994).
According to the characters of successful HRM transformation,
we can find distinctions in that companies facilitate structural
flexibility of downsizing and outsourcing through not individual
merit pay but workgroup-unit merit pay in compensation and
spin-off. Also they consider consistent loyalty and spirit through
positive efforts averting lay off such as job rotation, early
retirement, controlling newcomer, education-training program,
and temporary retirement system. These successful cases of
 Transformation of Korean HRM based on Confucian Values 25

HRM transit suggest possibility of Korean HRM that means a

mixture by advantage of traditional Confucian familism HRM
and performance-based HRM practices. But above all, the
strategic choice of management is important thr ough
overcoming pressure of isomorphism and making Korean HRM.
Inherent characters of HRM in societies are inherited.
Therefore, we have to search for inherited HRM’s gene of
Korean companies deeply. For that, we need to analyze the
transformation of Korean companies’ HRM practices interacting
external environmental change historically. Especially, we need
to pay attention to creative HRM practices under critical phases.
Because company practices and HRM reflect genetic factors, we
can find dominant genetic factors of Korean HRM for Korean
companies advance in these practices.

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