Introduction
This report examines Lotte Group’s introduction of a job-based pay system, covering the background and purpose of its implementation, the timeline and scope, the changes in job evaluation methods and salary structures, and internal reactions and effects following the system’s introduction.
Additionally, it outlines the basic concepts and characteristics of job-based pay, analyzes its advantages and disadvantages from policy and HR management perspectives, compares case studies from domestic and international companies, and presents challenges Korea faces in adopting the system.
1. Background and Purpose of Lotte Group’s Adoption of Job-Based Pay
Lotte Group became the first major Korean conglomerate to introduce a full-scale job-based pay system in response to urgent needs to overcome business challenges and innovate its HR practices. Facing economic downturns and poor performances from key affiliates, the group sought to dismantle its seniority-based pay structure and enhance productivity.
The group announced a transition from seniority-based to job value and performance-based pay systems. This move also aligned with demands from younger employees like the MZ generation for fairer compensation, and with global HR management trends.
By rewarding employees based on the significance and expertise required for their work, Lotte aimed to secure top talent and strengthen internal competitiveness.
Moreover, the initiative aligns with the government's push to reform Korea’s dual labor market and spread job-based pay systems across the private sector.
Ultimately, Lotte’s decision represents a strategy for crisis management, innovation in talent management, and adaptation to changing labor market conditions.
🚨 Why Did Lotte Choose Job-Based Pay?
- Business Crisis Management: Economic slowdown and poor performance of major affiliates
- Need for Labor Cost Efficiency: Limitations of seniority-based structures
- Rising Demand for Fair Compensation: Especially among the MZ generation (“Get paid based on contribution”)
- Government Policy Direction: Same work, same pay; labor market reforms
- Shift to Performance-Oriented Culture: Strengthening merit-based competitiveness
✅ In short, Lotte boldly opted for a performance-based compensation system amid crisis.
2. Timeline and Scope of Implementation
Lotte is implementing the job-based pay system in stages.
As of 2025, it is being piloted at three affiliates: Lotte Biologics, Daehong Communications, and Lotte Innovate.
The system will expand to other affiliates like Lotte Department Store and Lotte Wellfood by the end of 2025, and eventually group-wide.
Implementation schedules and procedures are being tailored for each affiliate.
For example, Lotte Department Store has already briefed executives and plans to hold a company-wide briefing in May 2025. If more than half the employees consent, the system will fully launch in 2026.
This approach complies with labor law requirements for pay structure changes and seeks to minimize employee disruption.
Although implementation specifics may vary, the overarching direction will remain consistent across affiliates.
📅 Timeline and Scope at a Glance
| Implementation Timeline | Pilot in 2025 → Full deployment by 2026 |
| Target Affiliates | Lotte Innovate, Lotte Biologics, Daehong Communications, others |
| Operation | Flexible application per affiliate, labor-management consultation, employee briefings |
| Note | Full-scale launch at Lotte Department Store in 2026 |
3. Lotte’s Job Evaluation Methods and Salary Structure Changes
Under the new system, salaries are determined based on the value of the job rather than seniority or rank.
Lotte classified its entire range of work into approximately 40 job families and assigned five grades based on job difficulty and importance.
Accordingly, basic pay differs by job grade.
For instance, the core R&D department at Lotte Chemical falls into the top tier and receives the highest basic salary, while administrative support departments fall into lower tiers with correspondingly lower basic pay.
The salary gap between the highest and lowest job grades is designed to exceed 20%.
Additionally, Lotte plans to phase out its traditional seniority-based ranks (e.g., staff → assistant manager → manager → senior manager).
Instead, promotions will be based on job roles and personal capabilities.
Under the new system, existing annual salaries will be maintained, while employees in higher job grades will receive additional allowances to prevent initial pay cuts.
Individual and department-based performance bonuses will continue to be paid separately.
Lotte’s goal is to shift from “paying people” to “paying for the job,” thus embodying the principle of equal pay for equal work.
🧠 Key Points of Lotte’s Job Evaluation and Salary System
- Job Segmentation: 40 job families classified
- Job Grading: Five grades based on job value
- Basic Pay: 20%+ difference between highest and lowest grades
- Separate Bonuses: Basic pay based on job, bonuses based on performance
- Example: Core R&D = Top Grade → Higher Basic Pay, Administration = Lower Grade → Lower Basic Pay
✔ No decrease in existing salaries; job-based pay added as an allowance to minimize disruption.
4. Internal Reactions and Anticipated Effects
Internal reactions to Lotte’s job-based pay are mixed.
Management expects to foster a performance-driven work culture, but some employees express concern and resistance.
Employees fear their departments may be classified as lower-tier jobs, resulting in feelings of unfairness and demotivation.
One employee commented, “All departments are essential. On what basis are they ranking us?”
The perception of job hierarchies is creating dissatisfaction.
Labor union negotiations are another critical factor.
For example, Samsung’s attempt to implement a similar system in 2021 failed due to intense employee opposition.
Lotte is consciously avoiding base pay cuts, instead offering job-based allowances and emphasizing communication with employees.
However, gaining employee trust and changing perceptions remain crucial.
The actual effects are hard to gauge at this early stage.
Nonetheless, management anticipates greater cost efficiency and enhanced competitiveness by curbing seniority-driven payroll increases and focusing rewards on key talents.
Short-term challenges include preventing morale loss and minimizing internal conflicts.
Continuous monitoring and refinements will be needed after full implementation.
If Lotte succeeds in embedding a fair reward system, it could boost employee engagement and trust in the long run.
📢 Diverging Internal Reactions
| Fair compensation based on capabilities | Feelings of alienation among lower-tier jobs |
| Compensation aligned with performance | Resistance to job hierarchy classification |
| Adoption of global-standard HR practices | Labor union opposition and concerns |
💬 Some employees: “Are support departments being devalued?”
💬 Management: “We expect a culture of performance and improved labor cost structure.”
5. Basic Concept and Characteristics of Job-Based Pay
A job-based pay system determines employee compensation based on the nature and difficulty of their job, regardless of age or seniority.
It evaluates the value of each job within the organization and applies a standardized pay scale accordingly.
The core idea is to "pay for the job, not the person."
Thus, two people performing the same role will receive the same salary, and more difficult roles will receive higher pay.
This approach contrasts sharply with seniority-based pay or skill-based (competency-based) systems.
In a job-based pay system, fairness and transparency in compensation are emphasized.
To implement it properly, companies must first perform detailed job analyses, clarifying responsibilities, required competencies, and job difficulty levels.
Typically, companies use job evaluation sheets or scoring systems to classify jobs, sometimes with support from external consulting firms.
Once job grades are set, salary tables are established based on these grades.
Individual performance bonuses or incentives are usually structured separately, resulting in a two-tier system:
- Basic Pay (Job-Based)
- Performance Bonus (Result-Based)
Another key feature is flexibility in talent management.
Since salaries are tied to job roles, companies can offer competitive pay to top talent and adjust staffing efficiently based on business needs.
Additionally, job descriptions inform employees about the skills needed for promotion or lateral moves, helping motivate career development.
However, this system can also conflict with traditional Korean practices like frequent internal job rotations, as job classifications become more rigid.
For this reason, some companies adopt a hybrid model combining job-based and skill-based pay.
In summary, job-based pay focuses on the "value of work" and aims for fair compensation and a performance-driven culture, but it requires thorough job management and organizational readiness to succeed.
🧾 What Is Job-Based Pay, and Why Is It Important?
- Pay is centered on work itself, not tenure
- Salaries are based on difficulty, importance, and responsibility of the job
- Same job = same pay, regardless of who performs it
- 💡 Benefits: Fairness, motivation, attracting top talent
- ⚠️ Challenges: Ensuring objective job evaluations, managing cultural resistance
6. Advantages and Disadvantages of Job-Based Pay (Policy and HR Management Perspectives)
Advantages
- Increased Fairness and Motivation
Equal pay for equal work enhances acceptance among employees, motivating younger and high-performing talent. - Talent Acquisition and Optimal Deployment
Companies can attract and retain top talent by offering competitive salaries aligned with market values for critical jobs. - Productivity Improvement and Cost Efficiency
Eliminating automatic annual raises linked to seniority helps control labor costs and ties salary growth to performance. - Sustained Employment for Older Workers
Since pay is based on job value and performance, not age, skilled senior workers can continue contributing without excessive labor cost burdens.
Disadvantages
- Challenges in Objective Job Evaluation
Fairly evaluating job value is complex and prone to disputes, requiring significant time and resources. - Risk of Lower Morale and Conflict
Employees in lower-graded jobs may feel demotivated, and salary gaps can create internal divisions or hinder collaboration. - Long-Term Talent Development and Loyalty Issues
Employees may focus solely on current job performance, potentially weakening long-term career development and company loyalty. - Complexity and Cost of Implementation
Redesigning HR systems, conducting training, and managing transition costs are major hurdles.
⚖️ Job-Based Pay: Quick Overview
| Compensation | Fair pay structure | Difficult to ensure objective job evaluation |
| Organizational Culture | Performance-driven culture | Potential collaboration breakdown |
| Talent Management | Easier to secure top talent | Possible decrease in loyalty from senior staff |
| Labor Costs | Improved cost efficiency | Transitional costs and confusion |
7. Comparison of Domestic and International Adoption Cases
Domestic Cases
- Lotte Group: First major Korean conglomerate to fully adopt job-based pay.
- Samsung Electronics: Attempted to adopt but withdrew due to employee opposition.
- SK Group & LG Group: Introduced partial job/role-based systems.
- Naver: Implementing "level-based" pay tied to job performance.
- E-Mart: Strengthened performance-based pay but did not fully implement job-based pay.
In the public sector, entities like KORAIL Networks have also started advancing job-based pay through labor-management agreements.
International Cases
- U.S. and Europe:
Job-based pay is the norm, with structured systems like job descriptions, job grades, and salary bands. - Japan:
Companies like Hitachi have adopted job-based pay alongside extending retirement ages. Other major firms like Panasonic, Sony, and Toyota are following suit.
🌍 Comparison Between Domestic and Global Adoption
| 🇰🇷 Lotte Group | First Korean conglomerate to fully implement job-based pay |
| 🇰🇷 Naver | Level-based performance-oriented system |
| 🇰🇷 Samsung | Attempted but canceled due to opposition |
| 🇯🇵 Hitachi | Successfully implemented, linked to extended retirement |
| 🇺🇸 U.S./Europe | Job-based pay widely established, facilitates global talent attraction |
In short, while job-based pay is well-established in the West and becoming mainstream in Japan, Korean companies still face stronger resistance due to deep-rooted seniority culture.
8. Challenges and Issues in Adopting Job-Based Pay in Korea
- Cultural Resistance and Labor Relations Management
Korea’s strong seniority culture creates emotional barriers.
Senior employees may resist changes that limit their salary growth prospects. - Need for Objective and Transparent Job Evaluation Systems
Developing credible evaluation systems and comprehensive databases requires significant effort and investment. - Managing Transitional Confusion
During mixed operation with existing systems, wage reversals and fairness issues may arise, requiring careful management. - Overhauling HR Systems
Full adoption requires revising training programs, career development systems, promotion criteria, and organizational culture. - Legal and Policy Support Needed
Current laws require majority employee consent for pay changes, and there are few legislative protections for ensuring "equal pay for equal work."
Policy support like tax benefits or model templates could ease corporate transitions.
🏁 Conclusion
Lotte Group’s adoption of a job-based pay system represents a strategic move for survival and innovation amid crisis.
If successfully implemented, the system could achieve both fair compensation and enhanced corporate competitiveness.
However, overcoming initial resistance and managing organizational change will be the true determinants of success.
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