On the eve of a general strike, Samsung Electronics labor and management reached a tentative wage deal in a dramatic turn, but Samsung Electronics shareholders are furious. They say the decision to pay excessive bonuses to high-income employees, even before using the massive operating profit generated by the semiconductor boom as resources for dividends and investment, infringes on shareholder interests.
On top of that, the tentative deal ties bonuses to the company's operating profit, and they argue it is illegal for labor and management to agree to such incentive payments without shareholder approval. Shareholders also signaled legal action over the special bonus plan agreed to by labor and management, saying it is "a matter that cannot be decided without a vote at the shareholders meeting."
On the 20th, Samsung Electronics labor and management tentatively agreed, through a tentative deal, to pay 10.5% of business performance as bonuses (treasury shares) in the form of a special management performance bonus for the semiconductor (DS) division. The company-wide cash bonus remains in place, and there will be no cap on the payout ratio for the special management performance bonus.
Although the dispute between labor and management was patched up with an agreement dramatically reached a day before the general strike, discontent erupted among Samsung Electronics shareholders. If special management performance bonuses are paid based on operating profit, an accounting metric before deducting interest and corporate taxes, the capacity to pay dividends that should go to shareholders will inevitably shrink.
In particular, Samsung Electronics shareholders argued that the tentative deal is "illegal." The shareholder delegation stressed first that operating profit should be subject to distribution only after taxes are deducted. Their point is that it is illegal if the basis for calculating the bonus pool is a fixed percentage of pre-tax operating profit.
They also point out procedural problems with paying bonuses linked to the company's operating profit without going through a shareholders meeting.
The Korea Shareholder Action Headquarters, a Samsung Electronics shareholder group, held a rally near the home of Samsung Electronics Chairman Lee Jae-yong on the 21st and said, "The tentative labor-management deal to pre-calculate 12% of pre-tax operating profit and link and allocate it as bonuses is illegal," adding, "Unless a shareholders meeting resolution is passed, it is legally null and void."
The headquarters added, "Even if the payout timing is after tax, forming a bonus pool at about 12% of operating profit by combining 1.5% performance incentive (OPI) and 10.5% special management performance bonus is identical in essence in terms of illegality, since the basis for calculating the pool is a fixed percentage of pre-tax operating profit."
Adding OPI 1.5% and the 10.5% special management performance bonus yields about 12% of operating profit to be paid as bonuses, and the logic is that this substantially infringes on the residual property claim that should belong to shareholders.
They went on to say that if a board resolution to ratify and execute the tentative agreement is put on the agenda, they will file a lawsuit seeking confirmation of nullity and an injunction. They also said they will file a shareholder representative lawsuit for damages against all directors who voted in favor of the tentative deal for violating the Commercial Act.
On the 22nd, the Shareholder Action Headquarters held a press conference in front of the Supreme Court in Seocho-gu, Seoul, saying, "The decision on special bonuses for Samsung Electronics executives and employees falls under shareholders' authority," and, "If it does not go through a shareholders meeting, we will file for an injunction to suspend its effect and a lawsuit to confirm nullity."
They argued, "Under Supreme Court precedents, this type of performance incentive does not fall under 'wages and other working conditions' that labor and management can agree upon."
The Samsung Electronics shareholder group is currently consolidating its ownership with the goal of amassing a 1% stake in Samsung Electronics. On the online shareholder activism platform Act, 13,816 shareholders have pooled more than 1.4814 trillion won.
Lee Sang-mok, head of Act, said of the Samsung Electronics shareholders' position, "Fixing a deduction for bonuses from operating profit itself falls within shareholders' rights, but the union said it would take this," adding, "Bonuses are meant to compensate key talent differentially, and having everyone take the same amount defeats the purpose of bonuses."
Earlier, President Lee Jae-myung made remarks to the effect that the distribution of a company's operating profit belongs to investors. Before the Samsung Electronics labor-management agreement was reached, Lee said at a Cabinet meeting, "Various stakeholders are involved in corporate (activities), but investors who bear risks and losses naturally have the essential right to share in profits," adding, "For labor, fair compensation for work must be guaranteed."
He added, "Investors and shareholders are the ones who receive distributions from operating profit," and said, "Institutionally sharing a fixed percentage of operating profit before even taking out taxes is something even investors cannot do."