As demand for power grids grows with the global expansion of artificial intelligence (AI), the power equipment industry is enjoying an unprecedented boom, but HD Hyundai Electric, which paid out bonuses last month, is in turmoil. Results were far better than the previous year, but bonuses actually decreased.
This is not just about HD Hyundai Electric. Major Korean power equipment companies posted record results, but the actual payout amounts were capped by a bonus ceiling system, sparking controversy over compensation across the industry.
According to HD Hyundai Electric on the 16th, the company posted a record performance last year with an operating profit of 995.3 billion won and an operating margin of 24%. This was driven by a surge in demand for ultra-high-voltage transformers amid an AI-fueled data center investment boom, along with the benefits of a strong dollar. Operating profit increased about 50% from 669 billion won the previous year, when the operating margin was 20%. Employees at the senior staff level and below received 1,195% of their contracted wage (base salary plus fixed allowances) as a bonus, the highest payout ratio among HD Hyundai affiliates.
But mid-career employees at the manager level with 8 to 9 years or more under the annual salary system are voicing complaints. The company introduced a bonus ceiling last year, capping the maximum at 1,000% of base salary. As a result, even though annual salary employees achieved record results, their bonus fell from more than 1,200% last year to 1,000% this year.
A bonus equal to 1,000% of base salary is not a small amount, but there is a large gap with what would have been expected without the bonus cap. According to the union, applying the existing annual salary formula that typically calculates 60% to 70% of the operating margin as the bonus, the manager-level payout rate comes out to 1,707%. The union has sent a letter of protest to management over the unreflected excess 707% due to the 1,000% ceiling. Inside and outside the company, there is talk that the ceiling was set preemptively given expectations of strong results over the next few years amid favorable market conditions for power equipment.
The controversy over the bonus ceiling is not limited to HD Hyundai Electric. Hyosung Heavy Industries also achieved record results, with operating profit last year surging to 747 billion won, more than double the 362.4 billion won a year earlier, on the back of soaring demand for power equipment such as ultra-high-voltage transformers. The operating margin also rose to about 13% from about 7% the year before. However, bonuses for employees in the Power Performance Unit (PU), which handles businesses like transformers, did not exceed 325% of monthly pay. Hyosung differentially pays bonuses by division, but sets caps of up to 325% of monthly pay for grades 1 to 3 and up to 225% for grades 4 to 5 office workers.
Calls for a more flexible compensation system in the power equipment industry reflect the sector's unique circumstances. Because most transformer production is done by hand, it is difficult to increase output without skilled workers. As Korea's power equipment industry commonly faces a shortage of skilled workers due to an aging veteran workforce, securing talent and improving compensation systems are shared challenges across the industry.
The conflict over bonus caps has spread across the business community. SK hynix, through a labor-management agreement in September last year, scrapped the existing 1,000% of base salary cap and shifted to allocating 10% of annual operating profit as the bonus pool. The structure, which flexibly adjusts compensation in line with results without a cap, drew industry attention. The Samsung Electronics union also pushed for abolishing the cap on the overachievement performance incentive (OPI) as a key demand in negotiations, but with talks recently breaking down, even the possibility of a strike is being discussed.
Companies say it is difficult to hastily abolish bonus caps. If excess profits earned during a boom are largely consumed as bonuses, internal reserves to prepare for a downturn and funds for investment to secure future growth engines will shrink accordingly. There is also a cautious view of the SK hynix approach. For now there is little noise thanks to favorable market conditions and rising stock prices, but in a future slowdown, paying bonuses without a cap could escalate into a dispute over infringement of shareholder interests, such as reduced capacity for shareholder dividends. How to share boom-time results is expected to remain a common task for the business community for the time being.