The LG Uplus labor union is demanding in this year's wage and collective bargaining (hereinafter wage talks) that "30% of operating profit be paid as a performance bonus," raising concerns across the telecom industry. Even as growth in the core telecom business has slowed and investment in artificial intelligence (AI) and shareholder returns are needed, a manufacturing-style "revenue-linked performance bonus" demand appears to be spreading to common carriers.
According to the industry on the 4th, the LG Uplus wage talks joint bargaining group 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, the creation of a minimum-title salary band system, and payment of performance bonuses equal to 30% of operating profit. Last year, LG Uplus labor and management agreed to an average wage increase of 1.3% (raising each employee's individual annual salary by 1.3% and then adding 190,000 won to that amount).
The union's demands also include a 35-hour workweek without wage cuts, extending the retirement age to 65, and improving the wage peak system. It also includes 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 made a counterproposal to operate a task force for reemployment on contract (chosetak reemployment), under which workers who reach the retirement age would retire and then be rehired on a fixed-term contract.
Why is the LG Uplus union, which accepted a wage increase in the 1% range last year, taking such an excessive and risky step this year? Observers say the stance has clearly shifted, especially as it is demanding a performance bonus linked to operating profit. Many in the industry say the telecom sector is raising the bar for demands by riding the momentum of high-rate wage and performance 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 a performance bonus. 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 footing. In manufacturing, profits can increase significantly depending on global demand cycles, export conditions, and product prices. In contrast, the telecom sector faces slowing subscriber growth and significant constraints on price hikes, limiting revenue expansion.
Last year's improvement in LG Uplus' results was driven more by windfall gains from a competitor's hacking incident than by structural growth. Last year, LG Uplus' operating profit was 892.1 billion won, up only 3.4% from the previous year. Despite an influx of new subscribers due to the fallout from hacking incidents at SK Telecom and KT, profits did not increase significantly.
There is also an assessment that it is unconvincing to demand a drastic wage increase and expanded performance bonuses on the grounds of improved results that did not come from better telecom quality or AI and new business performance. The three telecom companies need to expand investment in AI data centers, cloud, corporate AI, and security, but they have yet to produce clear revenue performance 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 performance bonuses, the capacity for dividends and the funds for AI investment could be at risk.
Kim Kyung-won, a distinguished professor of business administration 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 performance bonus formula as-is could upset the balance among investment capacity, shareholder returns, and consumer benefits," adding, "If a high-cost wage structure becomes entrenched in a telecom industry that has entered a low-growth phase, the company's growth engine could weaken."
This year's LG Uplus wage talks are expected to be a test bed for gauging the balance between the telecom sector's compensation system and its capacity for future investment.