The labor union at Hyundai Steel, the No. 2 player in the steel industry, demanded a 150% increase in this year's performance bonus from last year, but failed to narrow differences with management and moved to secure the right to strike. At POSCO, the industry leader, the welfare and performance bonus impact from directly hiring about 7,000 partner-company employees has emerged as a bargaining variable.
According to the steel industry on the 11th, the Hyundai Steel union will file for labor dispute mediation with the Central Labor Relations Commission on the day. Labor and management held seven rounds of wage and collective bargaining negotiations from the 8th of last month to the 9th of this month but failed to find common ground. If differences are not narrowed during the commission's mediation, the union can secure the legal right to strike through a vote by its members.
The Hyundai Steel union's core demand is a performance bonus increase. The union is asking to raise this year's performance bonus by 150% from last year. Last year's Hyundai Steel performance bonus was around 16 million won, including 300% of base pay and a 5 million won lump sum. This is the first time the union has set a fixed percentage for a performance bonus hike in its proposal. The demands also include a 140,000 won increase in base pay, higher step pay for job grades, and improvements to welfare programs such as car purchase subsidies.
Talks broke down as management did not present a concrete proposal. Management said it needs to review the union's demands more carefully, considering internal and external business conditions and earnings. The union said, "We determined that further talks are meaningless because management did not present a substantive plan," adding, "We will prepare for action depending on management's stance going forward."
Management at Hyundai Steel has not presented a proposal for more than a month because business conditions have deteriorated, including worsening profitability in its core steel business. Hyundai Steel swung to a profit with 15.7 billion won in operating income on a consolidation basis in the first quarter this year, but posted an operating loss of 72.5 billion won on a separate basis, with the loss widening by 16.4 billion won from a year earlier.
This is because rising raw material prices and a stronger dollar increased costs, which could not be passed on to product prices. Financial burdens from large-scale facility investments are also continuing. With an additional 707.4 billion won capital injection into its U.S. subsidiary for the construction of an electric arc furnace plant in Louisiana, total liabilities rose 4.1% from a year earlier to 15.195 trillion won in the first quarter.
The union, on the other hand, says last year's improved results should be reflected in performance bonuses. Hyundai Steel's sales on a consolidation basis last year were 22.7332 trillion won, down 2.1% from a year earlier, but operating income rose 37.4% to 219.2 billion won. The union argues that with headcount down while profits increased, per-capita productivity gains should be reflected in compensation.
POSCO will also hold a kickoff meeting for this year's wage talks on the 12th and enter full-fledged negotiations. The POSCO union on the 20th of last month delivered demands to management that include a 7.1% increase in base pay, a lump sum equal to 600% of wages, and improvements to welfare and lend programs. While it did not demand performance bonuses linked to operating income, the impact of directly hiring partner-company employees is expected to be a key sticking point at the bargaining table. The union earlier applied for mediation with the Central Labor Relations Commission in protest of the company's direct-hire decision, but failed to secure the right to strike due to an administrative guidance disposition, and launched a strike countermeasures committee late last month.
POSCO is currently directly hiring partner-company employees in stages. The main duties of those to be directly hired are indirect production support, such as operating water treatment facilities. The company plans to place them in the "Operations Synergy Job Group (S Group)," a wage system separate from the existing technical track that handles direct production. The union worries that if more than 7,000 direct hires are incorporated on a large scale within two years, existing employees' benefits could be reduced. The logic is that a surge in use of the in-house employee welfare fund and housing loan program by new employees would increase the burden of grants to the fund, lower the company's operating margin, and lead to smaller performance bonuses that are linked to the operating margin.
Korea's steel industry is facing a triple whammy of weak downstream demand such as construction, oversupply from China, and the burden of carbon-neutrality costs. POSCO Holdings' consolidated operating income in the first quarter this year was 707 billion won, up 24.3% from a year earlier, but operating income in the steel institutional sector fell 23.8% to 345 billion won. The industry worries that if, on top of external variables, wage and collective bargaining conflicts drag on, steelmakers' profitability pressures could intensify. An industry official said, "In a situation where external conditions such as high tariffs are uncertain, it is important for corporations and unions to communicate sufficiently and find common ground to overcome the crisis."