UPDATE 2-Hyundai persuades tough union to agree to smaller pay rise

Fri Sep 6, 2013 7:20am EDT

* Hyundai settles with union in pay dispute

* Outside of autos and financials, Korean unions have lost muscle

By Hyunjoo Jin

SEOUL, Sept 6 (Reuters) - Hyundai Motor agreed a slightly smaller pay rise for its workers than last year, and lost less cars to stoppages as it faced down one of the few South Korean unions left with the muscle to squeeze employers.

The world's fifth largest automaker, along with its affiliate Kia Motors, had suffered stoppages from Aug. 20, but the company should be able to make up for the lost output through overtime work once the union members ratify the pay deal.

The 46,000 union members will vote on Monday on whether to accept the terms thrashed by their negotiators.

The share market reacted positively on Friday to the deal reached late the previous night.

Hyundai's stock rose 2.66 percent, to stand 7 percent higher than it was when the union calling stoppages, which had caused lost output of over 50,000 vehicles worth 1.02 trillion Korean won.

The tentative pay settlement, while less than last year's was still high given South Korea's low inflation and the company's slow earnings growth.

It included a 5.14 percent wage rise, and bonus incentives totaling 9.2 million Korean won ($8,400) per employee plus 500 percent of the basic monthly wage.

The unions had demanded eight months pay in bonuses, a gold medal worth $2,400, one-off payments for long-serving employees or workers whose children did not go to university.

Executives admit that their labour problems stand out from the norm in a country where the power of unions has been substantially curbed by tough labour policies implemented since 2008.

"The deal marked a step forward in our labour relations, but when you ask me whether the problems will be resolved completely next year, I would say no," said a Hyundai executive who was briefed about the wage talks, but could not be named due to the sensitivity of the issue.

Hyundai is not alone struggling with South Korean union wage demands. General Motors Co. makes 20 percent of its output in South Korea and plans to gradually wind down operations as a result of rising labour costs, sources told Reuters.

But, outside of autos and the financial services sector, strikes have become a distant memory in South Korea, a country where once-militant unions could shut down the capital in violent mass protests.

There were just 17 strike actions during the first half of this year, half the level seen in the first half of 2012. In 2007, before the government broke the unions' power, there were 115 strike actions.

During their strike there was little public sympathy for Hyundai's fulltime union workers who, based on current exchange rates, earn on average $85,600 per year in base pay, overtime and bonuses. That figure is double what they earned 10 years ago, according to company filings.

In a bid to reduce its dependency on South Korea and to move closer to its customers, Hyundai now assembles just 43 percent of its total global output at home. Its U.S. plant in Alabama is non-union.

"Strikes have occurred over the past 20 years and we cannot change it overnight. We will try step-by-step to gradually turn the tide," said the Hyundai executive.

Hyundai unions will pick a new leader in late October to replace Moon Yong-moon, who led workers out on strikes this year and in 2012, breaking a run of three strike-free years. Moon's two-year term will expire.

However, Park Tae-ju, a professor at the Employment & Labor Training Institute, who had advised the company on a new shift system, saw little evidence that union activism was on the wane at Hyundai.

"I cannot see any signs Hyundai's labour movement is weakening," Park said.

Nationally, the labour movement is in jeopardy. Less than 10 percent of South Korea's workforce belong to unions, half the level that it was in 1989, according to data from the Organisation for Economic Cooperation and Development.

But, perceptions remain coloured by South Korea's past history of industrial strife, according to Lee Sang-jae, an economist at Hyundai Securities, and it still needs to improve labour relations to remove old worries from investors' minds. Hyundai Securities is not part of the car group.

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