The LG Uplus labor union is demanding in this year's wage and collective agreement talks that "30% of operating profit be paid as bonuses," stoking concern across the telecom industry. As growth in core telecom operations slows despite the need for investment in artificial intelligence (AI) and shareholder returns, the manufacturing-style "revenue-linked bonuses" demand appears to be spreading to common carriers.
According to the industry on the 4th, the LG Uplus joint bargaining team for wage and collective agreement talks held the third main negotiation with management on the 23rd of last month. The union demanded an 8% increase in wage aggregates, inclusion of PI·PS (productivity encouragement pay·performance bonus) in the average wage, establishment of a minimum title-based annual salary system, and payment of bonuses equal to 30% of operating profit. Last year, LG Uplus labor and management agreed to a 1.3% average wage increase plan (raise each employee's individual annual salary by 1.3% and then add 190,000 won).
The union's demands also include a 35-hour workweek with no wage cuts, extending the retirement age to 65, and improving the wage-peak system. They also include requiring labor-management agreement six months before AI adoption and banning artificial restructuring on the grounds of technology adoption.
In response, management showed reluctance, proposing a 3% increase. On the demand to extend the retirement age, it counterproposed operating a task force for reemployment on contract as a retained worker, under which employees who reach retirement would retire and then be rehired on fixed-term contracts.
Why is the LG Uplus union, which accepted a wage increase plan in the 1% range last year, pushing such an excessive and overreaching demand this year? In particular, the assessment is that its stance has clearly shifted by even demanding bonuses linked to operating profit. Many in the industry see the telecom sector ratcheting up its demands by riding the wave of high-rate wage and bonus demands by large manufacturing unions.
The Samsung Electronics union is demanding 15% of annual operating profit and the Hyundai Motor union is demanding 30% of last year's net profit as bonuses. Kia is also reportedly reviewing a demand at a similar level.
However, some note that it is difficult to compare semiconductor and auto companies with LG Uplus, a common carrier, on the same line. In manufacturing, profits can surge depending on the global demand cycle, export conditions, and product prices. By contrast, in telecom, subscriber growth has slowed and there are major constraints on raising rates, limiting revenue expansion.
Last year's improvement in LG Uplus' results was largely a windfall from a competitor's hacking incident rather than structural growth. Last year, LG Uplus' operating profit was 892.1 billion won, up only 3.4% from the previous year. Even though new subscribers flowed in due to the fallout from the SK Telecom and KT hacking incidents, profits did not grow significantly.
There is also an assessment that it lacks persuasion to demand drastic wage hikes and expanded bonuses on results that did not improve through better network quality or AI and new-business performance. The three telecom companies need to expand investment in AI data centers, cloud, enterprise AI, and security, but they have yet to produce clear revenue results in AI. The burden of shareholder returns is also a variable. Telecom stocks are classified as representative dividend stocks. If operating profit is allocated to bonuses, capacity for dividends and AI investment funding could be at issue.
Kim Kyung-won, a distinguished professor in the business administration department at Sejong University, said, "Because common carriers face large long-term expense needs such as maintaining network quality, strengthening security, and investing in AI infrastructure, applying a manufacturing-style bonus formula as is could upset the balance among investment capacity, shareholder returns, and consumer benefits," and added, "If a high-cost wage structure becomes entrenched in a telecom industry entering a low-growth phase, the company's growth engine could weaken."
This year's LG Uplus wage and collective agreement talks are expected to be a test bed for gauging the balance between the telecom industry's compensation system and its capacity for future investment.