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mindmetoo
Joined: 02 Feb 2004
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 Posted: Thu Jan 31, 2008 5:57 am Post subject: Koreans paying severance a bit each month |
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My gf was commenting a lot of Korean companies pay the yearly severance each month. Instead of getting a lump sum at the end of each year, they just tack on 1/12th to your normal pay. The kicker is, of course, if you leave before the end of a year, you have to pay them back (probably in the form of a withholding from your final pay).
Clearly companies like this because they're not suddenly hit by a big pay out when an employee leaves. I guess it's good in that you're getting a portion every month and you can realize interest on that portion.
The down side is most people aren't really just putting that 1/12 aside. They're spending it. And if they leave before year end, they're in hock. This probably has certain effects on retaining staff. It's easier to walk away from money not in your hand (ie quit after 10 months and saying screw the bonus) than quitting after then months and realizing you might be owing $1000. |
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TheBulimicFatGuy
Joined: 03 Jan 2008
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| Posted: Thu Jan 31, 2008 7:07 am Post subject: Re: Koreans paying severance a bit each month |
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| mindmetoo wrote: |
My gf was commenting a lot of Korean companies pay the yearly severance each month. Instead of getting a lump sum at the end of each year, they just tack on 1/12th to your normal pay. The kicker is, of course, if you leave before the end of a year, you have to pay them back (probably in the form of a withholding from your final pay).
Clearly companies like this because they're not suddenly hit by a big pay out when an employee leaves. I guess it's good in that you're getting a portion every month and you can realize interest on that portion.
The down side is most people aren't really just putting that 1/12 aside. They're spending it. And if they leave before year end, they're in hock. This probably has certain effects on retaining staff. It's easier to walk away from money not in your hand (ie quit after 10 months and saying screw the bonus) than quitting after then months and realizing you might be owing $1000. |
My university has also just switched over to this system but I'm not really concerned though about spending the extra money every month because I save money. I'm not saving it specifically for paying it out if I quit my job early but I definitely have at least one month's salary locked away. It seems like, in your post, you're assuming that Koreans generally don't save money and live hand to mouth. This certainly isn't true of the many Koreans I've gotten to know. I suspect that lack of money is not what keeps Korean employees from prematurely ending a contract. It's probably more likely to be a sense of loyalty regardless of whether it's merited or not. |
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Otherside
Joined: 06 Sep 2007
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| Posted: Thu Jan 31, 2008 7:09 am Post subject: |
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Wouldnt this also be a problem for employees who have worked at a place for over a year. My understanding is that if you have worked at a place for 18 months, you are entitled to 18/12 of your basic salary as severence(average of the last 3 months). But under this system couldnt the employer argue that he/she has paid the first year's severence and thus the employee would have to reimburse the additional 6 months severence.
Also, I wouldn't be surprised if some companies try and spin this severence into making the salary appear better. i.e. we pay 2.2million a month vs 2million a month... |
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Otherside
Joined: 06 Sep 2007
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| Posted: Thu Jan 31, 2008 7:15 am Post subject: |
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| It seems like, in your post, you're assuming that Koreans generally don't save money and live hand to mouth. |
I doubt he meant this as a korean specific generalisation, but in many countries there are alot of people who do live hand-to-mouth or beyond their means etc, so I would assume it applies to some koreans too.
That being said, one of the ideas of severence is to provide some sort of security for an employee who has terminated employment for whatever reason (as well as a bonus). Some one who has put in a year or two in a company may get a decent bonus, but someone who has invested his/her whole career in a company would get a HUGE bonus - which would go a long way to providing for a comfortable retirement.
Paying severence out monthly seems to go against these ideals, wouldnt it be the same as paying out pension monthly? (adding a 4.5% bonus to your paycheck each month). |
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bluelake
Joined: 01 Dec 2005
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| Posted: Thu Jan 31, 2008 2:25 pm Post subject: |
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| It's money-saving for a business, as they pay you based upon your salary each month, rather than a lump-sum based upon your final salary. |
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mindmetoo
Joined: 02 Feb 2004
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| Posted: Thu Jan 31, 2008 3:43 pm Post subject: Re: Koreans paying severance a bit each month |
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| TheBulimicFatGuy wrote: |
| mindmetoo wrote: |
My gf was commenting a lot of Korean companies pay the yearly severance each month. Instead of getting a lump sum at the end of each year, they just tack on 1/12th to your normal pay. The kicker is, of course, if you leave before the end of a year, you have to pay them back (probably in the form of a withholding from your final pay).
Clearly companies like this because they're not suddenly hit by a big pay out when an employee leaves. I guess it's good in that you're getting a portion every month and you can realize interest on that portion.
The down side is most people aren't really just putting that 1/12 aside. They're spending it. And if they leave before year end, they're in hock. This probably has certain effects on retaining staff. It's easier to walk away from money not in your hand (ie quit after 10 months and saying screw the bonus) than quitting after then months and realizing you might be owing $1000. |
My university has also just switched over to this system but I'm not really concerned though about spending the extra money every month because I save money. I'm not saving it specifically for paying it out if I quit my job early but I definitely have at least one month's salary locked away. It seems like, in your post, you're assuming that Koreans generally don't save money and live hand to mouth. This certainly isn't true of the many Koreans I've gotten to know. I suspect that lack of money is not what keeps Korean employees from prematurely ending a contract. It's probably more likely to be a sense of loyalty regardless of whether it's merited or not. |
Koreans now have the option of taking the yearly lump sum or investing in a pension fund. I would imagine the lump sum is preferable to the hand to mouth types. But even for people who save there is still a psychological cost. First, people might be asset rich but cash poor. Second, people like to see a big number in their savings account and don't like to see that number go down. I've noted the curious habit of people in North America who have enough money in their bank to pay off their credit card bill that month but actually split payments over several months. They're not saving any money doing this. But they simply don't like to see their savings account go in the other direction. |
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Draz
Joined: 27 Jun 2007
Location: Land of Morning Clam
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| Posted: Thu Jan 31, 2008 3:58 pm Post subject: |
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| Like your typical runner would even consider worrying about paying it back. |
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Young FRANKenstein
Joined: 02 Oct 2006
Location: Castle Frankenstein (that's FRONKensteen)
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| Posted: Thu Jan 31, 2008 10:12 pm Post subject: Re: Koreans paying severance a bit each month |
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| mindmetoo wrote: |
| My gf was commenting a lot of Korean companies pay the yearly severance each month. Instead of getting a lump sum at the end of each year, they just tack on 1/12th to your normal pay. The kicker is, of course, if you leave before the end of a year, you have to pay them back (probably in the form of a withholding from your final pay). |
The funny thing? The Labor Board doesn't allow this. They don't see it as monthly + 1/12th.. they see it as a higher monthly and severance is STILLL owed at the end.
A hagwon I worked for several years ago used this system for my final year of employ, but when I went to the LB for my airfare and unpaid salary, they said "Oh, btw, you can get your severance, too". I explained the extra 1/12th bit, but they said that's not how it works... I get (and got) severance. Sweet. |
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TheBulimicFatGuy
Joined: 03 Jan 2008
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| Posted: Fri Feb 01, 2008 7:13 am Post subject: Re: Koreans paying severance a bit each month |
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| mindmetoo wrote: |
Koreans now have the option of taking the yearly lump sum or investing in a pension fund. I would imagine the lump sum is preferable to the hand to mouth types. But even for people who save there is still a psychological cost. First, people might be asset rich but cash poor. Second, people like to see a big number in their savings account and don't like to see that number go down. I've noted the curious habit of people in North America who have enough money in their bank to pay off their credit card bill that month but actually split payments over several months. They're not saving any money doing this. But they simply don't like to see their savings account go in the other direction. |
Insanity! A fundamental rule of sound financial management is to pay off the highest interest debt loads. The only exception is reservation of an emergency fund (typically a maximum of three months income is all that is necessary). Other than that, I can't follow the logic of why anyone would want to hold on to savings that are earning them less interest than what they are paying out on outstanding debt.
Sadly, I've noticed the same phenomenon especially amongst the first year Canadian residents of Korea. Australians are lucky in that they can escape their obligation to pay back student loans but Canadians (I think it may apply to Americans too) definitely cannot. Many Canadians come here with massive debt loads and continue to make make only the bare minimum of payments on their loan and use their excess income on entertainment. Admittedly, I followed this pattern somewhat in my first year also.
So, while previously I said it was insanity, I'd have been better to say it is illogical. I can understand on emotional level how it might be tempting to ignore one's debt in favor of one's assets especially when those assets can be applied to providing unaccustomed luxuries. |
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