This study was conducted to investigate the prospects and issues for the implementation of the annual salary system in Korean hospitals. Data were collected from the top management of 669 hospitals in Korea through the self-administerd questionnaires. Of the 175 respondents, 171 questionnaires were used as final data and analyzed using $X^2$ test. The results of the study are as follows. 1) It is found that 49.7% of the study hospitals are operating the annual salary system. 2) Among the hospitals which are not operating the annual salary system, 49.2% have the plan to implement the system and 44.5% have not decided yet whether they introduce the system or not. 3) The proportion of the hospitals which have the plan to implement the annual salary system within 5 years is 96.8%. 4) The proportion of the hospitals which will begin the system only with full-time physicians and middle level managers is 36.2%, while that of the hopsitals which will apply the system to all employees is 30.5%. 5) Hospital Administrators seems to prefer to 10-20% salary gap for the introduction period among the employees with same salary. 6) Most of the respondents are willing to accept the payment system based on the performance. 7) The major issues which should be dealt with before the implementation of the annual salary system are the establishment of the objectivity of performance evaluation criteria, the improvement of teamwork, and the maintenance of organizational commitment. 8) The desirable criteria for employee evaluation are found to be the mixture of the ability, job position, tenure, and the job difficulty.