The peak wage system is a system that gradually reduces the salary of employees while guaranteeing employment in exchange. The system was first implemented domestically in the Korea Credit Guarantee Fund in 2003. Following the amendment of the Act on the Prohibition of Age Discrimination in Employment and Elderly Employment Promotion (“Elderly Employment Act”) in 2013, which increased the retirement age to 60, the Korean government accelerated the widespread adoption of the peak wage system by the public sector by presenting the “Peak Wage System Guidelines” in May 2015.
The peak wage system can be classified into three types: i) the “retirement-age guarantee”, which guarantees employment until the retirement age stipulated in collective agreements and rules of employments, but adjusts wages from a certain age; ii) the “retirement-age extension”, which extends the employee's retirement age, but adjusts the wages for the years extended prior to retirement; and iii) the “employment extension,” in which extends employment by rehiring the employee as a contract worker after the employee retires at the retirement age.
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