Breaking Away from Bureaucratic Inertia: Lotte Department Store Introduces Job-Based Pay System to Dismantle Seniority-Driven Inefficiencies

Seniority-based personnel system as impediment to innovation
Comprehensive shift toward job value and expertise
Compensations aligned with performance regardless of job level

Lotte Department Store is introducing a new “expertise growth-centered HR system.” As part of the group-wide transition toward a job-based pay structure, the initiative aims to enhance employees’ professional competencies and boost overall productivity. The move is not merely a wage system overhaul but is being framed as a declaration to abandon a “bureaucratic” organizational culture in favor of a “performance-driven” workplace. It reflects the company’s determination to reward talent with innovation and expertise, adapt swiftly to change, and secure new growth engines.

Lotte Department Store Adopts Job-Based Pay, Compensation Differentiated by Workload and Performance

According to the retail industry on the 26th, Lotte Department Store held a briefing session earlier this month to introduce the new “expertise growth-centered HR system” to employees and will complete a consent process by the end of the month. As of late June, Lotte Department Store employed a total of 4,210 workers, according to its semiannual report submitted to the Financial Supervisory Service. Once majority consent is secured, the company will proceed with revisions to employment rules and HR regulations, with implementation scheduled for the latter half of this year.

The initiative is part of Lotte Group’s broader restructuring of its HR and wage framework launched last year. Previously, Lotte operated a seniority-based pay scheme in which salaries were determined primarily by years of service. Going forward, compensation and evaluation will be based on the expertise, complexity, and responsibility of the job function, irrespective of tenure or rank.

To prepare for the transition, Lotte Group conducted a comprehensive job analysis last year, categorizing functions into five levels (1–5) based on difficulty and importance. For instance, R&D units at Lotte Chemical were classified as Level 5, while factory operations and production management positions were assigned lower levels. At Lotte Department Store, product developers (MDs) are expected to be placed in higher levels, as are marketing specialists at Lotte Wellfood.

Employees in higher-level roles naturally receive higher base salaries. Even if both Level 5 and Level 1 employees receive the same “B” grade in performance evaluations, Level 5 employees earn over 20% more in base pay. With base pay accounting for about 50% of total compensation, this structure ensures differentiated remuneration. However, employees in lower-level roles can still secure substantial rewards through strong performance. As the system integrates both job-based and performance-based pay, a Level 1 employee receiving an “S” grade in performance evaluation could offset lower job-based pay with a larger performance bonus compared to higher-level colleagues.

The program was developed in consultation with global HR consultancy Mercer. Lotte Biologics, Daehong Communications, and Lotte Innovate have already adopted the job-based system, while Lotte Chemical’s Advanced Materials Division began implementation last month. Lotte Wellfood also completed its consent process last month, with 56.6% of its 2,073 employees voting in favor. Following revisions to HR regulations and filings with the Ministry of Employment and Labor, the system is set to take effect on September 1.

Lotte Seeks Structural Reform by Dismantling Seniority Hierarchy

Lotte Group’s overhaul of its HR and wage structure comes amid mounting crisis across its core businesses in retail and chemicals. Lotte Shopping reported a 3.9% year-on-year decline in revenue to $10.2 billion and a 6.9% drop in operating profit to $347 million last year. In the first half of this year, operating profit rose by about 11%, but revenue slipped by 2%. Lotte Chemical recorded a $1.35 billion loss last year and a further $278 million operating loss in the first half of this year.

In response, the group has been in emergency management mode since last year, offering voluntary retirement packages at some affiliates and actively pursuing asset divestments. Lotte Chemical sold its Pakistani subsidiary LCPL for $96 million and a 4.9% stake in Japanese chemical firm Resonac for $208 million.

Experts attribute Lotte’s struggles to its “lackluster work culture.” HR executives at major Korean conglomerates often dub Lotte employees “Lot-mu-won” (a portmanteau of Lotte and “gongmuwon,” meaning civil servant) for their bureaucratic mindset and rigid compensation system. Despite adopting an annual salary system belatedly in 2018, Lotte retained its seniority-driven hierarchy, where advancement and pay increases hinge on tenure rather than expertise or performance. Talented professionals thus found it difficult to gain promotions or meaningful rewards without climbing the time-based ladder.

The culture of guaranteed employment until retirement, regardless of output, persists. With an aging workforce and inevitable extensions of retirement age in a super-aged society, the bottleneck of senior, high-cost employees has intensified. Against this backdrop, Lotte’s decision to adopt job-based pay is seen as a decisive step to shift toward a performance-oriented culture necessary to overcome its current crisis.

Corporate Preference for Experienced Hires with Immediate Impact

This move also aligns with the broader corporate trend toward prioritizing experienced hires. The traditional large-scale recruitment of fresh graduates has lost momentum, with companies favoring on-demand hiring of seasoned professionals who can contribute immediately. Compared to new recruits requiring extensive training, experienced hires provide a more efficient solution in the labor market.

The flaws of outdated seniority-based wage systems have long been criticized. According to the Korea Labor Institute, wage determination in Korea is excessively skewed by seniority—even more so than in Japan, a country with a deep-rooted seniority tradition. In Korea, employees with over 30 years of service earn 4.4 times more than new hires with less than one year of tenure. Workers with 15–19 years of service earn 3.3 times more, and those with 20–30 years earn 2.83 times more. By comparison, the ratios in Germany (1.88x), France (1.34x), and the UK (1.49x) are far lower, and even Japan’s 2.54x ratio falls behind Korea’s.

Experts argue that such pay structures are unsustainable in the age of artificial intelligence, where productivity is paramount. Leading corporations such as GE, IBM, Google, and Amazon in the U.S., as well as Toyota, Sony, and Hitachi in Japan, and even Huawei, Xiaomi, and Tencent in China, have already adopted job-based pay systems. Across Europe, job-based or hybrid pay models are standard, with nearly 80% of British companies implementing job-based compensation. Job-based pay has effectively become the global standard.