“Post-Samsung” Demands Spread, Raising Red Flags Over Investment Slowdown
“Operating profit-based bonuses” could emerge as a new paradigm capable of shaking up corporate management.
Samsung Electronics’ debate over “bonuses tied to a certain percentage of operating profit” is now spreading across South Korea’s broader business community. What began as an internal issue at Samsung is rapidly evolving into a common point of contention for companies across industries.
Business circles believe labor groups are likely to intensify efforts to establish the recent agreement between Samsung Electronics management and labor unions as a new benchmark, seeking to distribute a fixed percentage of corporate operating profit as employee bonuses. The expectation is growing that “operating profit-based bonuses” could emerge as a new paradigm capable of shaking up corporate management.
There is also mounting backlash against allocating part of operating profit, which serves as the primary funding source for large-scale capital expenditures and research and development, to employee bonuses. Critics warn that resources that should be used for future growth could instead be diverted toward immediate employee welfare, potentially undermining long-term competitiveness.
Some shareholder groups have also raised concerns that if corporate boards accept labor union demands to carve out a portion of operating profits for bonuses, shareholders could file lawsuits against directors for breaching their fiduciary duties under the Commercial Act.
According to the business community on May 20, the Samsung Electronics case has triggered growing calls at other companies for a fundamental overhaul of how corporate bonuses are calculated.
For instance, LG Uplus employees are demanding bonuses equivalent to 30 percent of operating profit, while Kakao workers are seeking 10 percent of operating profit as bonuses. Hyundai Motor’s labor union has proposed using 30 percent of net profit as the source of bonus payments. The labor union at Samsung Biologics is also demanding bonuses linked to 20 percent of operating profit along with separate incentive payments.
A business industry official said, “The Samsung Electronics case has effectively become a milestone for companies currently wrestling with how to structure bonus payments,” adding that “it is likely to create significant ripple effects across major labor issues in corporate Korea, ranging from employee welfare to ordinary wage standards.”
Samsung Electronics and SK hynix have traditionally used economic value added, or EVA, as the basis for calculating excess profit incentives known as Overall Performance Incentives, or OPI. EVA refers to operating profit after tax minus capital costs.
In 2000, Samsung Group adopted EVA as the funding source for corporate bonuses, helping spread the system throughout South Korea’s major conglomerates. Samsung, which had been exploring profit-sharing systems to boost employee motivation since the early 1990s, modeled its approach after U.S. technology company Hewlett-Packard, which distributed 12 percent of pretax profit to employees, and decided to allocate a fixed portion of EVA to workers.
However, labor groups have long criticized the EVA framework as an opaque system, calling for the disclosure of calculation formulas and structural reforms because the precise equations and benchmark indicators are not publicly disclosed. Workers expressed deep dissatisfaction with the structure, noting that even when operating profits soared, EVA could be artificially reduced if capital costs were set high.
Calls to calculate bonuses based on operating profit instead of EVA began gaining momentum after the SK hynix dispute in 2021. At the time, conflict intensified after a junior employee dissatisfied with the EVA-based system sent a message to all employees. SK hynix workers demanded compensation improvements, arguing that their rewards fell short of those at Samsung Electronics.
Using operating profit as the basis for bonuses has the advantage of being easier to understand intuitively than the EVA system while making bonus payment standards more transparent. However, concerns have emerged that using operating profit as a bonus source could create contradictions in which bonuses must still be paid even when companies post net losses.
Because operating profit does not reflect non-operating expenses, companies could face situations in which bonus allocations must be carved out before paying interest expenses or corporate taxes.
In addition, while EVA is calculated after subtracting capital costs such as facility investment and research and development expenses from after-tax operating profit, the operating profit-based method does not take large-scale corporate investment into account. As a result, business circles worry that such a system could entrench a corporate culture that prioritizes immediate bonus payouts over securing resources for future investment.
Jung Moo-kwon, a professor at Kookmin University’s College of Business Administration, said during a seminar hosted by the Shareholder Action Research Institute on May 15 that “companies requiring large-scale capital expenditure and research and development secure investment resources based on operating profit and use remaining funds for dividends or share buybacks,” adding that “if a substantial portion of operating profit is transferred to employee bonuses, the capital available for future investment and shareholder returns will inevitably decline.”
Experts also warn that if bonus standards shift from EVA to operating profit, conflicts between labor unions and shareholders could intensify. Since shareholder dividends are based on net profit, using operating profit as the basis for bonuses could create what critics call a “pre-dividend” issue in which employees receive profit distributions before shareholders.
Since an amendment to the Commercial Act, expanding the scope of a director's fiduciary duties from the company to shareholders took effect in July last year, shareholder groups could potentially file lawsuits alleging breaches of fiduciary duty if corporate boards accept labor union demands for bonuses tied to a fixed percentage of operating profit.
Kwon Jae-yeol, a professor at Kyung Hee University Law School, said, “Under the Commercial Act, operating profit fundamentally belongs to shareholders, and
decisions regarding profit distribution fall under the exclusive authority of shareholder meetings,” adding that “forcing a profit distribution formula constitutes a breach of directors’ fiduciary duties.”
Jung Suk-yee
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