Retirement packages unexpectedly benefit young talent

Voluntary retirement packages, often coming with generous compensation, have been adopted by companies as a way to let go of older or redundant employees. But now the severance packages are being increasingly used by junior staff or core employees at South Korean banks as a good excuse to move to promising startups or fintech platforms.

Labor unions at the country's leading banks, including Kookmin Bank, had long opposed the so-called honorary retirement programs. But now they have changed their stance, urging their management to expand the coverage of the packages to younger employees. 

"Previously, the management side induced employees to apply for voluntary retirement to streamline their workforces," said a banking industry source. "But from this year, the tide was reversed. Our labor union is demanding the eligibility age should be lowered to their early 40s."

A voluntary retirement package, also called an early retirement program, offers a couple of years' salary on top of severance pay and other benefits such as children's educational expenses. They easily top several hundreds of million won, or over $100,000, per employee.

Last year, Kookmin Bank made employees born between 1965 and 1973 eligible for its severance package. Under the retirement program in 2020, 800 employees left the country's largest lender, almost double the previous year's number of 462. Among the voluntary retirees, those in their late 40s took an even bigger share than the bank's expectation.

Kookmin's labor union is now calling on the bank's management to lower the eligibility age to those born in 1974 as the bank is receiving applications for the package this year.

For Shinhan, the country's second-largest lender in 2018 allowed employees aged 41 or above to apply for early retirement options. That led to the departure of 780 employees, including a multitude of those in their early 40s.

This July, it increased the eligibility age to 50 for its early retirement package.

"Those in their late 30s and early 40s are the core workforce. Their departure means we are losing our backbone," another banking source said.

The rise of internet-only banks and fintechs has prompted talented junior employees to jump ship.

"The retirement packages led our core workers to leave, while those we wanted to leave ended up staying," the source said.

Some employees utilized the retirement packages, even after they found new jobs. 

Unexpectedly high turnovers of young employees has something to do with the banks' shift toward digital operations, or a sharp increase in IT workers. As their careers tend to peak between the ages of mid-30s and early 40s, they are actively looking for better-paying jobs. 

Moreover, banks' labor unions are aggressive in pushing to lower the voluntary retirement age to win votes from young employees ahead of elections for their new leaders early next year. 

Currently, Hana Bank is receiving applications for voluntary retirement programs, to be followed by Shinhan Bank next month.

Write to Jin-woo Park at jwp@hankyung.com
Yeonhee Kim edited this article.