Performance reviews in Korea: big firms cascade targets, startups calibrate

This guide is for HR staff, managers and founders in Korea who design performance reviews and pay, and for HR professionals moving between a large company and a startup. Both kinds of company link reviews to pay, but they set targets very differently. No system is perfectly fair, so the aim is a process people understand and accept.

The basic dilemma

Linking reviews to pay is a question every organization faces. Reviews are never perfect, so tying money to them can seem unfair. But if reviews do not affect pay, people may stop taking them seriously.

A perfectly fair review does not exist. A method that removed human judgment entirely and measured every job and result objectively would be one of the biggest discoveries in the history of management. HR teams should accept this limit and still aim for a system that is as fair and as easy to accept as possible.

How large companies set targets

At large Korean companies, setting the right numeric targets is the core of performance-based pay. Targets usually start from macroeconomic assumptions provided at group level, such as the exchange rate outlook and economic growth forecasts, and from the past 3 years of results. Management then adds its strategic intent and fixes the final figures.

These company targets cascade down: from business division to team, and from team to individual. Strategy planning or finance teams usually lead this process. HR provides guidelines and checks whether the allocation is reasonable.

The hardest part for HR is judging whether key performance indicators (KPIs) are fairly allocated without deep knowledge of each job. Take a sales team with a ₩1 billion sales target. Should it be split equally, split by each person's skill and experience, or replaced with different kinds of goals for different roles? HR has to weigh these options.

Why the same method struggles at startups

Many startups try to adopt the large-company framework: draw a strategy map and align each team's KPIs with company strategy. The basic approach is the same, but startups face real limits:

• Little or no history. A young company has few past results to build on.
• Undefined markets. Market size and growth rates are often hard to forecast.
• Constant change. Fast growth makes targets go out of date quickly.

This makes it hard to set stretch goals that people accept. A stretch goal is one you can reach only with your best effort. If it is too high, it does not motivate; if it is too low, it holds back growth. Google's own guide to objectives and key results (OKRs) treats a score of about 60~70% as the target range and says that people who always fully achieve their objectives are not aiming high enough.

Calibration sessions and their limits

To work around these limits, many startups use session-based reviews, often called calibration. Instead of a formula, managers discuss each person's performance and potential together, identify key talent and low performers, and link the outcome to incentives. This adapts well to fast change.

Procedural fairness is the weak point. However objectively the sessions are run, people who are unhappy with their results may feel that the company has no proper review system. Explain how sessions work, who takes part and what criteria are used.

Other approaches to pay

• Job-based pay (직무급, jingmugeup): pay follows the value of the job rather than individual results, which can make pay more objective.
• Skill-based pay: pay follows the skills and level a person has. This approach suits technology-focused startups.
• Goals separate from pay: some companies use OKRs to set and track goals for growth and alignment, and decide pay in a separate process. Google's guide states that OKRs are not synonymous with employee evaluations. This can lower the burden of reviews while keeping a goal-driven culture.

Rules to follow when you change the system

Employers with 10 or more regular employees must write work rules (취업규칙, chwieop gyuchik) and file them with the Ministry of Employment and Labor (고용노동부). The rules must cover how wages are set, calculated and paid, pay raises, bonuses, and commendations and sanctions (Article 93 of the Labor Standards Act). To write or change them, the employer must hear the opinion of the union that represents a majority of workers or, if there is none, of a majority of workers. A change that is less favorable to workers needs their consent, not just their opinion (Article 94). See File changed work rules on Form No. 15 with workers' opinion or consent.

Practical advice

1. Fit the system to your company's maturity and culture. Copying a large company's detailed system into a startup, or a startup's flexible method into a large company, usually fails.
2. Aim for steady improvement, not perfection. Collect feedback and improve the system a little every year.
3. Decide in advance how review results will be used, and explain it openly.
4. Make reviews and pay strengthen your strategy and the values and behaviors you want, not only measure and rank individuals.

There is no single right answer. Finding the mix of large-company structure and startup flexibility that fits your organization is where HR expertise shows.