www.mercer.com

Breaking Down BordersDoing business in KoreaAndy (Hyung Chul) ParkCJ Kim

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Today’s speakers

Andy ParkPrincipal, Ph.D.Korea Market Leader

Andy.park@mercer.com+82 2 3404 8311

CJ KimPrincipal, Retirement, Risk and Finance Consulting Korea

cj.kim@mercer.com+82 2 3404 8392

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1

Agenda

Korea in General

2 Culture of Korean business context

3 Talent and HR Issues

4

5 Labor Legislations

6 M&A in Korea

Benefits Practices

1. Korea in general1 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

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Country Overview

USD1=KRW1,157.63.3% (10)3.5% (11e)

Inflation rate

3.8% (10)3.5% (11e)

USD 1,425 bill. (10)4.5% (10)4.0~4.5% (11e)

Seoul

48.5 million

Unemploym‐ent rate

GDP Growth %

Capital city

Population

Fact file on Republic of Korea

EUR1=KRW1,529.5

GBP1=KRW1,799.3

Exchange rate(Dec 2010)

Korean, English widely taught in junior high and high school

Official language

•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.

Korean culture overviewKorean culture overview

Almost 22 mil (50% of population) people live and work in greater Seoul Areas

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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 infrastructure

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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 economy

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

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Confucianism Influence to Korean Corporate Culture

Paternalistic leadership

•Like the role of a father, the superior or employer is expected to lead and command authority.

•Paternalistic thinking remains strong among the leaders in many Korean companies.

Family‐like working environment

•The superior plays the role as a parent while the senior staff plays the role as elder brother.

•When the employees feel that they are part of the company, the sense of belonging can be built and everyone is willing to work hard for the company.

Hierarchical structure

•The management decision‐making process is highly centralized with the authority concentrated on senior levels.

• It is often difficult for individuals to voice dissenting views due to the hierarchical culture.

Family ties & blood‐based succession

• In Confucianism, the eldest son is expected to inherit the family assets and succeed his father.

•Many Korean company owners have applied the same concept to their managerial succession.

Gender inequality

•The Confucian concept of “women should place first priority on family responsibility” has caused gender inequality in Korean management culture.

•Overall, women have received lower salaries compared to their male colleagues.

Collectivism

•Korean people value group interest more than individual interest.

•Emphasizing team work spirit has proven to be the effective tool in many companies to enhance management efficiencies and productivity.

Even though Korean corporate culture has been mingled with Western and practical values, Confucianism still significantly impacts Korea firms’ corporate culture as following:

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Practices and Phenomenon from Impact by Confucianism

Meeting practicesMeeting practices

• Prior appointments are required and should generally be made one or two weeks in advance.

–The most suitable times are normally between 10am and 12pm or 2pm and 4pm.

–However, client can request to arrange a meeting one or two days in advance and suddenly.

• Punctuality is essential.–Your Korean counterparts will

expect you to arrive on time as a sign of respect. It is advised to call beforehand if you will be delayed.

–Top Korean business executives may arrive a few minutes late to appointments. It means a reflection of their extremely busy schedule. Don’t take it as an offence.

Hierarchical ImpactHierarchical Impact

• Korea is known for its vertical social structure based on age and social status.

–The organizational arrangement of Korean companies is highly centralized with authority concentrated in senior levels.

• Influenced by Confucianism, Koreans respect for authority is paramount in their business culture and practices.

–High-ranking individuals tend to have more power over their subordinates than in the West.

–Decision making in Korea will follow a formal procedure in which senior approval is necessary.

RelationshipRelationship

• Responsibility is delegated to trusted, dependable subordinates by their superiors.

–Don’t offend or ignore the lower ranks and to show the various managers the same respect as other senior levels.

• Age is the most essential component within a relationship.

–A person older than you automatically holds a certain level of superiority.

• Personal ties, such as kinship, schools, birthplaces etc, often take precedence over job seniority, rank or other factors

–Those have significant influence over the structure and management.

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Korean Title

Sawon (Staff)

Daeri (Assist. Mgr.)

Kwajang (Mgr.)

Bujang (Sr. Mgr.)

Sangmu (VP)

Chajang (Deputy Sr. Mgr.)

Easa (VP)

Jeonmu (SVP)

Korean Title System

Seniority / Se

rvice Yrs.

Actual Grade based on Role

Junior

Senior

Team Leader(Manager)

Teams Leader(Director/Executive)

G4

G3

G2

G1

Size of R

ole & Respo

nsibilitie

s

Actual Grade based on Position Value

PC 41~46

PC 47 ~52 

PC 43~58

PC1) 59~62

G4

G3

G2

G1

Positio

n Value

1) PC means Mercer’s Position Class

• 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

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.)

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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) Focus

3. Talent and HR Issues1 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

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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 operators

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[Job Distribution of Foreign Companies in Korea

94%

91%

74%

74%

74%

70%

66%

62%

48%

46%

41%

38%

33%

29%

16%

14%

1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Sales

Finance  & Accounting

Human Resources

Adminis tration

Marketing

Supply & Logis tics

Information Technology

Engineering

Genera l  Management

Qual i ty Assurance

Contact Centre

Corporate  Affa i rs

Manufacturing

Sales  & Marketing

Research & Development

Consul ting

Project Management

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

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Key Stats of Foreign Companies’ Job Market in Korea

2.8

1.3

5.9

5.0 5.2 5.1

4.4

5.2

6.1

3.7

2.6

5.65.5

5.75.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

A LL CH CP HT PH

2009 2010 2011

Salary Increase 2009, 2010 & 2011_Including FreezeAverage based

11.8

8.89.1

5.3

9.0

0

2

4

6

8

10

12

14

ALL CH CP HT PH

3.4

1.5

7.5

3.73.7

0

1

2

3

4

5

6

7

8

ALL CH CP HT PH

Retrenchment Rate 2009Average basedAverage based

Turnover Rate 2009

Source: Mercer TRS Post Session Report 2010

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Key Stats of Foreign Companies’ Job Market in Korea (Continued)

Annual Total Cash_Actual

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

200,000

220,000

240,000

260,000

280,000

300,000

320,000

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

KRW 000

Staff Professional Management Top management

Source: Mercer TRS Post Session Report 2010

Portion of variable pay linked to performance is various across industries and role level. In average 10% to 35%

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Key HR Issues (2009 ~ 2010) in Korea: Korean Conglomerates

HR strategy

HR function

HR services

Recruitment

Training

Evaluation / Career development planning

Talent management

Compensation

Labor relations

Retirement

HR KPI renewalPerformance‐based systemReinforcement of HR communicationGlobal HRLeadership Pipeline Management and People Session

Establishment of long‐term staffing strategy In‐depth selection process focusing on competencies and values

Reinforcement of leadership and top talent management programsEstablishment of job‐based training system

Reinforcement of strategic CDP by business unit / job family / jobAlignment of evaluation with other HR functions

Strict management for low performersContinuous selection and maintenance for top talents / Succession Planning

Compensation differentiation based on job characteristicsReview on executive compensation system

Establishment of win‐win system by Improving organizational management skills of field leaders / introducing time‐off / dealing with multiple union systems

Development of outplacement service Introducing Early Retirement Programs or Leveraging Retirees

Review on retirement pension system (Transforming to new ERSA)Establishment of e‐HR systemRe‐define HR governance and delivery models in global context

Source: Korea Monthly HR Management (January 2010) 

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Key HR Issues (2009) in Korea: Foreign Invested Companies

Source: Mercer Korea Benefits Report (2009)

6%

6%

14%

14%

17%

20%

21%

34%

41%

42%

50%

51%

54%

54%

62%

63%

73%

0% 50% 100%

Wage Peak System

Flexible Benefit Program

Regularization of Non‐regular Employee

Promotion System

Sales Incentive Program

Performance Bonus System

Others

Job Analysis / Description / Evaluation

Employee Opinion Survey

Pay Structure

Competency‐based HRM System

Job‐based HRM System

Corporate Culture

Employee Training Program

Performance Management System

Leadership Development Program

Retirement (Corporate) Pension Program

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Under Transition toward New Paradigm

Old paradigm

Recruiting & staffing

Evaluation

Compensation

Labor retention

Culture

Attraction & retention of all employees

Life-time employment

Attraction & retention of key talents

Diverse employment status

Attitude , Seniority, Politics By managers

Performance, Competency, Fit to Core Value / CREDO

By 360 degree, People Session

Internal value Equality Salary + Benefit + allowances Complex Structure in base pay

Market value Equity Base pay + STI1) + LTI2) +

Benefits + L&D = Total Rewards Simple structure in base pay

Collective understanding Salary increase, working

condition

Individual needs Profit sharing, employability

Closed, hierarchical Centralized / Top-down One-way communication

Open, participatory, transparency Decentralized, peer-communication

(horizontal) and bottom-up (SNS) Real-time two-way communication

1) STI: Short-term Incentive 2) LTI: Long-term Incentive

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

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4. Benefits Practices1 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

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Statutory Benefits in Korea

Employer must provide SPS or ERSA plan to its employees (Employer need to fund minimum 8.3% of final pay per year of service (DB) or annual pay (DC))SPS or ERSA

Details

The contribution is payable only by the employer (Employer only contribute, 100%)Industrial accident

compensation insurance

Unemployment pay: The contribution rate is 1.15% (Employer 0.7%, Employee0.45%) of the salary 

Employment security & Vocational ability development program: The contribution rate is differentiated by the size of the organization (Employer only contribute)

–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%

Employment insurance

The contribution rate is 5.68% ( Employer 2.84%, Employees 2.84%) of the employee’s monthly salaryNational medical scheme

The contribution rate is 9% ( Employer 4.5%, Employees 4.5%) of the employee’s monthly salaryNational pension scheme

Category

Termination of employment must be confirmed and premium must have been paid for at least 6 months within the period of 18 months prior to unemploymentUnemployment benefits

The Korean Labor Standards Act mandates that companies provide certain types of paid leave (e.g. annual leave, monthly leave, maternity leave, etc)Leave

This benefit provides to employee per  every other year (employer can provide this benefits to its employee’s dependants) Physical check‐up

There are 15 national paid holidays (distributed among 11 events ) that must be observedNational holiday

Social sec

urity

Oth

ers

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Other Benefits in Practice in Foreign Invested CompaniesCompared 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)

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Korea Retirement Benefits System

Employee Retirement Security Act (ERSA)

Severance Pay System (SPS)

Insurance contract or Trust contract

Tier 2

Tier 1National Pension Scheme (NPS)

Or

AndCorporate DB plan

Corporate DC plan

Current plan New plan (2005~)

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SPS vs. ERSA

Permitted Plan TypePermitted Plan Type

Funding RequirementFunding Requirement

In‐service WithdrawalIn‐service Withdrawal

Form of PaymentForm of Payment

SPS ERSA

DB only

None

Permitted

Lump sum only

DB or DC

60% for DB100% for DC

Possible only for emergencies

Lump sum or annuity

Corp tax benefit on external funding after 2010

Corp tax benefit on external funding after 2010

No Yes

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)

64.9%

1,258,467

DB

100%

1,939,412

Total

3.7%31.4%Ratio

72,467608,478Number of 

employees adopted ERSA

IRADC

Source : Ministry of Labor and Financial Supervisory Service (October, 2010)

3.8%

1,204,919

46,260

Under 10 employees

6.0%

1,422,261

85,882

Total

44.8%

1,071

480

500 ~ employee

s

32.3%

1,330

429

300~499 employee

s

29.2%23.8%15.6%Ratio (①/②)

9,46047,529157,952②Number of 

Total Companies

2,76311,32324,627①Number of companies 

adopted ERSA

100~299 employee

s

30~99employee

s

10~29 employee

s

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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  thatare “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.

Market Trend (1/2)

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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) 

Market Trend (2/2)

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5. Labor Legislations1 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

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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

Individual labor relations laws

They can be described as the body of rules concerned with the individual relationship between an employer and employee.

Collective labor relations laws

They reinforce individual labor relations laws. They are a body of rules governing the collective relationship between 

employers’ and workers’ organizations.

Employment policy & administration laws

They stipulate the role and duty of the government, enterprises and employment service agencies in employment security, promotion and vocational training.

1

2

3

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Individual labor relations laws1

To maintain and promote the safety and health of workers by preventing industrial accidents through establishing standards on industrial safety and health, and clarifying where the responsibility lies, and by creating a comfortable working environment

Industrial Safety &

Health Act

To realize the gender equality in employment in accordance with the idea of equality in the Constitution, by ensuring equal opportunity and treatment for men and women in employment

Equal Employment

Act

To stabilize workers’ livelihoods and improve the quality of the labor force by guaranteeing workers a certain minimal level of wages, thereby having them contribute to the sound development of the national economy

Minimum Wage Act

To set standards for the conditions of employment in conformity with the Constitution, thereby securing and improving workers’ standards of living and achieving a well-balanced development of the national economy

Labor Standards

Act

The purpose of the ActName

To contribute to securing workers’stable livelihood in their old age by stipulating matters needed to establish and operate a retirement benefit scheme for workers

Employee Retirement

Benefit Security Act

To raise workers’ quality of life and contribute to the balanced development of the national economy by prescribing the matters necessary for establishing welfare policies for workers and carrying out welfare projects

Basic Workers

Welfare Act

To secure the wage claims of workers when employers lack paying ability due to bankruptcies

Wage Claim Guarantee

Act

To grant rapid and fair compensation for workers’ occupational accidents by providing for an industrial accident compensation insurance program, to contribute to the protection of workers through the establishment and operation of the insurance facilities necessary for its implementation, and to carry out undertakings for preventing accidents and promoting the welfare of workers

Industrial Accident

Compensation

Insurance Act

The purpose of the ActName

Selective

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Key contents in Labor Standard Act

Various terms regarding working conditions exist in the Labor Standard Act to protect the rights of employees.

Key contents

Standard working hours

40hours a week Overtime Limitation: 12hours per week

Flexible working 2 weeks by employment agreement (Limited to 12hrs a day & 52hrs a week) 3 months by written agreement

Annual leave 15 days for 80% & above attendance 1 day added bi‐annually

Monthly leave No monthly leave Unpaid menstruation holiday upon request

Others Total holidays limited to 25 days No duty to pay for unused

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Recent changes in Labor Standard Act (2010 & 2011)

Two recent major changes in Labor Standard Act are ‘Allowance of multiple union representations’ in one company and prohibition of ‘Payment for full-time union officials’.

Multiple union representations

Payment for full‐time union officials

Old law

Only one union representation is allowed per company.

Multiple union representations are allowed in one company. (Effective As of July 2010)

The unions should form single bargaining channel for negotiation with the employer.

Employers are not punished for paying full‐time union officials. 

Employers are prohibited to pay full‐time union officials.(Effective As of July 2011)

Reasonable time‐off during working hours is permitted for union officials who carry out certain trade union duties.

– Duties regarding employees’difficulties, industrial safety and collective bargaining. 

New law

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Collective labor relations laws2

To contribute to the security and development of labor relations by establishing the Labor Relations Commission and regulating matters as to the operation of the Commission in order to perform, in a prompt and fair manner, functions of adjudication and adjustment in labor relations

Labor Relations Commission Act

To keep the peace in industry, and to contribute to the development of the national economy by promoting the common interests of labor and management through mutual participation and cooperation

Act on the Promotion of

Worker Participation and

Cooperation

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 Constitution, and to contribute to the maintenance of industrial peace and the development of the national economy by preventing and resolving industrial disputes through fair adjustment of labor relations

It mainly deals with the principles of collective bargaining, labor disputes and their resolution, and unfair labor practices

Trade Union & Labor Relations Adjustment Act

The purpose of the ActName

Selective

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Employment policy & administration laws3

To prevent unemployment, promote employment, develop and improve the vocational ability of workers, to strengthen national vocational guidance and job 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

Employment Insurance Act

To enhance the efficiency of insurance work by stipulating necessary matters concerning establishment and termination of insurance relationship, payment and collection of insurance premiums, etc. for employment insurance and industrial accident compensation insurance

Act on the Collection, etc., of Premiums for Employment

Insurance andIndustrial Accident

Compensation Insurance

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 occupation in which they may cultivate and display their abilities, and to satisfactorily support the demands of the workforce as pertinent to industry

Employment Security Act

To improve the status of workers and to contribute to the development of the national economy by developing and improving employees’ abilities through conducting vocational training for them

Basic Employment Policy Act

The purpose of the ActName

Selective

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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 Group

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Trade Unions in Korea: FKTU & KCTU*

FKTU (Federation of Korean Trade Unions)

KCTU (Korean Confederation of Trade Unions)

Request for wage rise (Including legal minimum wage)Reduction of working hoursProtection of employment stabilitySecure employees’ right to organize and strike

Representation for national‐scale labor unionsEnactment and amendment of LSA (Labor Standard Act)Protection of industrial safetyOrganizational reinforcement regarding labor disputes, collective bargaining, etc

Major activities

658,118 members

Promotion of employees’ rights and interests

November 11th 1995

725,014 membersSize**

March 10th 1946

Social reform and improvement of employees’ rights

Purpose

Date of foundation

* FKTU: Federation of Korean Trade Unions / KCTU: Korean Confederation of Trade Unions** Source: Korea Labor Statistics, 2008

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

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6. M&A in Korea1 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

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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&A also decreased but the amount was on a similar level in 2009

M&A by foreign companies in Korea

(KRW Trillion)

Source: Korea Fair Trade Commission, 2009

47

23

4.0

1.4

0

10

20

30

40

50

2008 20090

1

2

3

4

5

Case Amount

48

30121.6121.2

0

10

20

30

40

50

2008 20090

30

60

90

120

150

Case Amount

<OUT–IN M&A> <OUT–OUTM&A>(KRW Trillion)(Number)(Number)

<OUT–IN M&A : Acquirer’s Nationality>

34.8

40.4

38.3

26.1

17.0

24.7

21.7

17.0

15.1

17.4

25.5

21.9

2009

2008

2007

EU USA Japan etc.

(Unit: %)

Key Findings

• The total number of M&A involving foreign companies in Korea decreased in 2009.

• The number of M&A that a foreign company acquired a domestic company decreased but the total amount increased by 4 trillion won in 2009.

• The number of M&A between foreign companies also decreased but the amount was on a similar level

• In OUT–IN M&A type, companies from EU were ranked No.1 and USA came in at second place.

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Major Obstacles and Challenges for Successful M&A in KoreaThe main obstacles for M&A in Korea are related to Human Resource matters

26%

24%21%

20%

9%

Dow nsizing, Retaining Key Talent Integrating culture

Sharing corporate vision Integrating business infra

Unclear Inforamation of merged co

Major Obstacles for PMI in M&A 

Source: Korea Development Bank Research Institute, 2007

•Management of Human Resource related issues is the most important factor in M&A 

–Downsizing : the difficulties in targeting employee for downsizing & union’s objection

–Integration of organization culture : 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

•To accomplish the maximized effect of M&A, Human Resource & Union related issues are should be considered in first and in the most urgency

Q. What are the main obstacles in PMI process,  which can effect the M&A deal? 

Implication

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Key Success Factors for M&A in KoreaPlan for PMI, strategic goal and strong drive of top management are the key success factors in M&A

Plan for PMI

Strategic consideration with 

long term approach 

Due Diligence of people issue 

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 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 emotional integration must be prolonged at least one year after completion of the deal. Strategic goal such as synergy and securing the elements of HR issues should be made with long term approach than just implementing simply integration of HR programs of acquiring company.

Watch out union matters and employees’ emotion about foreign companies.   Especially, during DD phase, analyze previous union conflicts 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.

Questions?

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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

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For more information on regional strategies Risks and opportunities

Visit our Breaking Down Borderswebsite to access articles, points of view, podcasts and more information on investing in Korea

www.mercer.com/breakingdownborders

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Breaking down Borders webcast series

www.mercer.com/breakingdownborders

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