Hyundai's management and union have reached an agreement for a 5.4% increase in base salary, raising hopes that the automaker will avoid a strike for the third year in a row, although workers now need to approve the settlement.
IHS Global Insight Perspective | |
Significance | Hyundai's management and union have reached an agreement for a 5.4% increase in base salary, marking an end to marathon talks that started last week and clearing the way for a third straight strike-free year at the automaker. |
Implications | The successful wage negotiations underline the improving relationships between unions and company management in South Korea. The union has urged its members to approve the deal. |
Outlook | Approval of the wage deal would be a huge plus for Hyundai as it looks to strengthen its position globally. |
Hyundai's management and its workers' union have reached an agreement for a 5.4% rise in base salary, reports Asia Pulse, after overnight talks at the largest South Korean automaker's Ulsan plant. The agreement is likely to be put to a vote among workers on Friday (26 August).
Under the agreement, Hyundai would increase workers' base pay by 93,000 won (USD86), as well as providing performance-based pay equivalent to three months of salary and KRW7 million as a cash bonus. The automaker will also give its employees 35 shares in the company.
The union had initially demanded an increase of KRW150,611 in monthly basic pay and performance-based pay equivalent to 30% of Hyundai's 2010 net profit. Although the agreed rise in base salary is lower than the union's original demands, it is a record high and up from the KRW79,000 increase awarded in 2010.
Hyundai has also agreed to raise allowances for paid leave by 50% and raise stipends to those who have worked for the company for a long time. The retirement age has also been increased by one year from 58 currently. The two sides have also reached an agreement over the controversial "time-off" rule by agreeing to reduce the number of full-time union representatives from 233 to 111. Of these 111 members, Hyundai will pay the salaries of 26 members, while the remaining 85 will be paid by the union.
"The settlement highlights the commitment by the company to improve working conditions and to work together with the union to forge a better future for the company", Hyundai's management commented after the talks, expressing hope that union members agree to the deal. Union representatives also expressed satisfaction at the outcome and added that the agreement offers record benefits for workers. Shares in the automaker were up 3.4% in morning trade today (24 August) after the announcement of the wage agreement.
Outlook and Implications
The agreement came after management and the union reached a settlement on 6 of 25 issues that were on the table (see South Korea: 18 August 2011: Hyundai and South Korean Union to Start Wage Negotiations Tomorrow). In all probability, this agreement should end the annual negotiations without a strike for the third year in a row. However, nothing is final until the union members vote on the deal and the agreement is sealed; workers at Kia last month surprised observers by rejecting an agreement reached between management and the union (see South Korea: 22 July 2011: Kia Reaches Agreement with Union on 5% Rise in Base Pay). However, Kia workers finally approved a sweetened wage accord on 19 August, averting strike action for a second straight year at the automaker (see South Korea: 17 August 2011: Kia Claims Tentative Wage Deal with South Korean Union, Workers to Vote This Week), and the Hyundai deal appears to match that secured at its stable-mate.
The biggest breakthrough was obviously the agreement over the "time-off" rule, which would reduce the number of paid unionists to 26. The dispute over the controversial law caused the union to walk out of wage talks after just 10 minutes last month (see South Korea: 28 July 2011: Hyundai's Q2 Net Profit Up 37%, Company Faces Strike Threat As Talks Collapse).
Averting a strike is crucial for the automaker at this juncture, with its facilities running at near full capacity to keep up with strong global demand. Hyundai is running low on inventories as a result of strong demand for its fuel-efficient and economic vehicles in domestic and overseas markets and a strike could have crippled sales. Although the automaker is increasing its manufacturing activities overseas, domestic production still takes centre stage, accounting for around 46% of its global production. Indeed, Hyundai raised its domestic production to a record high of 1.74 million units during 2010, with output increasing at two of its biggest facilities in Asan and Ulsan. Hyundai produced over 1.07 million vehicles in South Korea in the first seven months of this year and IHS Automotive's forecast that the company will be able to raise output to 1.96 units for the full year does not look overly ambitious following this wage agreement.
The successful wage negotiations at Hyundai and Kia indicate that the once militant unions of South Korea have moderated their attitudes in recent years, which is a big plus for manufacturing companies in the country. Approval of the latest deal by workers on Friday would lift a huge weight off Hyundai's shoulders.