The performance bonus conflict that began in the semiconductor industry is spreading across South Korea’s key industries, including shipbuilding, automobiles, and information technology (IT). Demands are rapidly growing to institutionalize performance bonuses – originally intended as morale boosters – by fixing them at a certain percentage of operating profit.
Because this controversy could undermine the long-term sustainability of companies, the government must recognize the seriousness of the issue and clearly state its position, starting with the Samsung Electronics Co. bonus dispute.
The labor union at HD Hyundai Heavy Industries Co. plans to demand in this year’s wage and collective bargaining negotiations that 30 percent of operating profit be distributed as performance bonuses.
In the IT sector, Kakao Corp.’s union is requesting 13-15 percent of operating profit, while LG Uplus Corp. union is demanding around 30 percent.
Performance bonuses are originally designed by companies after comprehensively considering future market conditions, investment plans, research and development needs, and financial instability.
If bonuses are technically tied to a fixed percentage of operating profit, companies’ managerial autonomy and strategic investment decisions could become impossible or severely constrained.
Even more concerning is the government’s response.
During the recent post-dispute mediation process involving Samsung Electronics, the government reportedly proposed a compromise of 12 percent of operating profit as a performance bonus. If the government endorses a specific ratio, a distorted compensation system could gain legitimacy and quickly become entrenched.
Under capitalism, shareholders have the right to additional profits because they invest capital and bear the risk of capital loss. Creditors receive interest, and employees receive wages guaranteed by contract, but they do not inherently have rights to additional profits. This is the fundamental and clear principle that profits correspond to risk.
The recent growing calls to introduce U.S.-style restricted stock units (RSUs) for employees are based on the same principle.
By granting stock to employees – who are otherwise bound only by contractual relationships – companies allow them to share the perspective of shareholders, transforming them into stakeholders who also share in the risks and rewards borne by the company.
From this perspective, the debate over guaranteeing a fixed percentage of operating profit as bonuses could undermine the fundamental principles of the national economy. What the Korean economy needs is sustainable investment and innovation capability.
Clear principles must be established so that the controversy over performance bonuses does not spread throughout industry.
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