Human Resource Management (HRM) Improvement Plan of Enterprise for Competency-Based Labor Market
Project leader: Dongman Na
Ⅰ. Background and Purpose of Research
■ Necessity of Improving Human Resource Management (HRM) in the enterprise
• The academic background and seniority-based human resources management system formed in an economic boom has been dominantly used.
- The proportion of the salary step system in businesses with over 100 employees is 68.3%
(2014), and the seniority salary for workers who have worked over 30 years is 3.3 times (2011) the starting salary in the production sector of manufacturing industries; this proves that seniority-based evaluation and compensation, rather than job competency and performance basis, have been pervasive.
- A reasonable wage system linked to job competency is lacking, with selection and recruitment practices requiring standardized specifications irrelevant to job competency persisting.
• The improvement of labor market structure should have precedence in order to realize a competency-based society where fair competition is practiced based on the various abilities of individuals rather than academic backgrounds.
- In resolving the mismatch between social costs and supply and demand of skilled labor in accordance with current labor market practices, the necessity of improvement of HRM from "academic background and seniority-based" to "job competency-based" has increased.
■Promoting policy weighted toward manpower training
• Most of the government policies in relation to the establishment of competency-based society are mostly aimed at manpower training.
- In-depth discussion is required on how to utilize the competency-based trained manpower in the labor market and enterprises.
• Although the competency-based HRM method depends on the characteristics of an enterprise such as industry type and organizational culture, etc., only standardized method such as NCS recruitment, etc., has been proposed and used.
- According to the data analysis from the Human Capital Corporate Panel (HCCP), enterprises with high performance under the traditional HRM (academic background and seniority-based) and enterprises with low performance under the competency-based HRM coexist.
- Appropriate and rational improvement plan(s) should be presented to suit the characteristics of individual enterprise heading toward competency-based HRM.
Ⅱ. Main Content of Research
1. Research Contents
■ Concept of competency-based labor market and HRM
• Korean companies seem to be hostile toward the competency-based labor market and HRM due to mixed sense on the concept of competency-based HRM, institutional obstacles, and organizational culture.
- Consequently, in most cases, this system is restrictively used in the education and training field where the system can be easily adopted and it creates less resistance from members, instead of being used in the key processes of HRM such as evaluation, compensation, etc.
- In many cases, the conceptual definition and unit of evaluation on competency are not consistent among companies (Hyeonju Kim, Sanggil Jeon, 2006). Thus, it is difficult to implement the competency-based HRM.
- The mix sense on the concept of competency-based HRM has caused inconsistency in improving the government policy and the enterprise system and made it ineffective.
• Our society has adopted and applied the concept of "competency-based society" as an alternative to recognize and resolve the harmful influence of academic background-based society.
- Ultimately, the concept of "competency-based" pursued by our society needs a relative definition reflecting its social specificity but contrasts with the concept of "academic background-based." Moreover, it should include an alternative definition to overcome the harmful influence of the academic background-based society.
• Accordingly, competency-based labor market and HRM shall be defined as follows;
- Competency-based labor market: A labor market that establishes a system to evaluate fairly and adopt various competencies of individuals, and its result serves as a key factor in determining one’s position and compensation (income level) in the labor market as a supply and demand mechanism of labor.
- Competency-based HRM: HRM that internally accepts the value system pursued by the competency-based labor market and ultimately utilizes job competency and performance as the main determinants throughout HRM (recruitment - placement - evaluation - compensation and promotion - education and training, etc.).
■ Impact of enterprise’s HRM on performance
• Financial and material resources and technologies, etc., can be shared with other companies and imitated easily. On the other hand, well-prepared human resources equipped with expertise, skills, and competencies are not only difficult to imitate but are being magnified as a new competitive advantage element (Jongseok Bae, 2006). In this regard, an
HRM method can contribute greatly to the improvement of enterprise performance.
• The HRM of an enterprise is shaped in accordance with the internal and external environments and strategies, etc., of each enterprise.
- A considerable amount of commonality in HRM can be found among enterprises because the environment or management strategy of a particular enterprise is not much different from most other enterprises.
- Note, however, that not all enterprises have the same HRM system and type due to differences in the specific environment and management strategy of each enterprise.
- Different results are derived depending on the situation or environment of an enterprise even if the same human resource system is applied.
• This study demonstrates that the relationship between competency-based HRM activities and their outcomes may be different depending on the circumstances and environment of an enterprise. It also identifies obstacles and constraints in restructuring its HRM system to competency-based HRM.
- Does traditional HRM, where academic background and seniority exert overwhelming influence, lead to a decline in enterprise performance?
- Does a new HRM that takes into account other factors besides academic background and seniority bring about improvement in enterprise performance?
• For the purpose of an actual analysis, Workplace Panel Survey (WPS) by the Korea Labor Institute and Human Capital Corporate Panel (HCCP) by the Korea Research Institute for Vocational Education Training (KRIVET) were used.
• In order to implement and establish the competency-based HRM successfully, the perception and attitude of interested parties (management, labor union, general labor, and enterprise network) on the actual status of human resource management ("HR management") system operation and on the competency-based HRM should be understood.
- The survey was conducted to study the actual status of competency-based HRM and
relative perception of such by HR managers from 500 domestic enterprises with more than 100 employees each.
- A Focus Group Interview (FGI) was conducted with seven HR managers based on the results of the survey above.
2. Research results
■ Workplace Panel Survey (WPS) data analysis result• Based on the implemented HRM system of enterprises, their non-traditional HRM implementation levels were calculated and classified into two groups.
- If academic background is considered an important factor when hiring, or a salary step system has been implemented, the two are determined as traditional HRM items; all other cases are determined as non-traditional HRM (competency-based) items.
- The current status of non-traditional HRM implementation by each enterprise is presented in <Table 1>.
<Table 1> Current status of non-traditional HRM implementation level by enterprises
(Unit: each, %)
Year 2005 2007 2009 2011
Level Number of
businesses Rate Number of
businesses Rate Number of
businesses Rate Number of
businesses Rate
High 1,005 52.8 832 48.0 747 43.0 891 50.3
Low 900 47.2 903 52.0 990 57.0 879 49.7
Total 1,905 100.0 1,735 100.0 1,737 100.0 1,770 100.0
■ Actual analysis using Human Capital Corporate Panel (HCCP) data
• The types of enterprises were classified in accordance with non-traditional HRM level variables and enterprise performance variables.
- In order to study distinctive differences in each type, enterprises with extreme characteristics were classified by type, with their performance analyzed by each determined type.
• The actual analysis confirmed that systems and practices that appear to be positive from individual and microscopic viewpoints among the HRM systems in Korea have shown negative effects due to the "fallacy of composition" from the collective and macroscopic viewpoints.
- According to the analysis of the relationship between the institutional characteristics of the HRM system and enterprise performance, as opposed to simple prediction, it has been confirmed that competency-based HRM implementation does not necessarily lead to the improvement of enterprise performance.
- In other words, although we all agree on the big picture of the government transferring the traditional HRM system to the competency-based HRM system, the institutional change may lead to a big problem that incurs conversion costs for enterprises.
- Uniformly requesting changes in the HRM system of enterprises without taking into consideration their management environment may hinder their efficiency.
■ Actual status and perception of enterprise with regard to competency-based HRM
• When recruiting new employees, enterprises consider attitude such as enthusiasm for work, etc., to be more important factors in addition to practical knowledge and competencies; moreover, academic background still plays an important role in job competition.
• A salary system used the most by Korean enterprises is the salary step system because this system has the benefit of accumulating more technologies and know-how as one keeps one's career longer; at the same time, however, the hierarchical culture of Korean enterprises also plays a noticeable role.
- There are cases wherein the salary step system has returned after adopting a performance-
based pay system, and it demonstrates that the enterprise culture and perception of its members play important roles in implementing the human resource system.
• Many enterprises recognize that competency-based HRM is necessary, yet they have difficulties in implementing it.
- As for the reasons competency-based HR management is not suitable for enterprises (N = 195, duplicate responses), more than half of the enterprises answered "inadequate tools for accurate evaluation of competency (51.3%)," followed by "inadequate definition of ability required by enterprise (38.5%)" and "lack of material and human resources of enterprise (35.4%)." Many HR managers were not aware of the National Competency Standards (NCS), and they did not know much about NCS itself; neither could they use it.
• It is shown that the rational evaluation and compensation system for competency-based HR management and its foundation and validity of definition of "ability" (competency) are related to (proportional to amount) the participation rate, satisfaction rate, contribution rate, and utilization rate of education and training.
- If a system related to the evaluation factors of competency is clear and reasonable, its education and training can be performed more productively and easily based on the system.
Ⅲ. Policy Recommendations
■ HRM improvement plan of enterprise for competency-based labor market establishment
• HRM systems currently adopted by enterprises have been established through their optimal or historically unique paths in their respective management environments, and competency-based HRM does not necessarily lead to improvement in enterprise performance.
- Therefore, competency-based HRM cannot be an optimal alternative for all enterprises in the labor market; as such, a differentiated approach along with consideration of various
situations and obstacles (conversion costs) for each enterprise should be planned.
• Overcoming the harmful influence of academic background-based system and creating organizational consensus on the necessity of competency-based HRM should precede the implementation of competency-based HRM, and enterprises should clearly and specifically define the competencies required for each job based on their job analysis.
• In principle, the competencies of workers should be evaluated comprehensively for a long period of time, the tools and methods for fair and objective evaluation on job competency should be developed, and the results of the evaluation should be utilized decisively.
• Overcoming the misunderstanding that competency-based HRM is used as a means of distinguishing and disciplining low-performance workers and establishing the system smoothly requires simultaneously operating an education and training system to improve the job competency of workers.
■ Government role in competency-based labor market establishment
• The government should play a role in creating conditions wherein other labor market subjects can perform their own roles smoothly and remove obstacles that may arise in the process of labor market transition by preparing alternative policies to minimize each enterprise’s conversion costs in implementing competency-based HRM.
• In order to overcome the harmful influence of academic background-based labor market, studies on the effectiveness of differentiated and various types of HRM suitable for each management environment and characteristics of enterprise should be conducted through national research institutes and academe. Furthermore, the job discrimination act should be enacted and enforced to prohibit discrimination due to academic background, school, gender, region, etc., which are irrelevant to the job competency and performance of workers.
• A method utilizing National Competency Standards (NCS) to measure the job competency of individual enterprises should be developed and popularized for small and
medium-sized enterprises, which are currently lacking material and human infrastructure to implement competency-based HRM; a qualification and recognition system based on job competency should also be established so that the social utilities of competency-based HRM can be promoted.
