In Korea, performance bonuses began to be introduced in earnest right after the 1997 IMF crisis. The government actively encouraged the adoption of performance bonuses to reduce labor costs stemming from the seniority-based pay scale.
Recently, semiconductor corporations such as Samsung Electronics and SK hynix have posted record profits amid a global boom in artificial intelligence, and performance bonuses are solidifying into multimillion-won high salaries. That runs counter to the original purpose of the system.
In particular, controversy is growing after the Samsung Electronics union signaled a strike and then agreed to receive 10.5% of operating profit as performance bonuses over the next 10 years. Operating profit should be paid out as dividends to shareholders or invested in research and development, critics say, questioning whether distributing it as performance bonuses to employees is appropriate.
There is also criticism that performance bonuses should be paid differentially according to each person's contribution, and if all employees receive the same amount, it violates that principle. The point is that the union forced the company, through bargaining, to pay performance bonuses that should be based on performance evaluations. Most employees receiving large performance bonuses will not need to bear responsibility for future business risks such as results. Even among Samsung Electronics employees, there are reactions that say "cannot accept it."
◇ Just before the IMF crisis, 1.6% of corporations had performance bonuses… gradually became common
In 1996, just before the IMF crisis, only 1.6% of domestic corporations operated an annual salary system that included performance bonuses. This ratio rose gradually to 23% in 2000, 66.2% in 2013, and 77.8% last year. The performance-bonus system has become common among domestic corporations.
Behind this was the government's push to introduce a U.S.-style performance-bonus system. To overcome the IMF crisis, the idea was to link wages to performance and results, thereby achieving both corporate restructuring and job stability. The view was that leaving the existing seniority-based pay scale in place would keep labor costs high and prevent corporate results from improving.
Even then, there were concerns that performance bonuses would become fixed pay. Unlike the United States, in Korea it was virtually impossible to dismiss regular employees, and large unions had strong bargaining power. There was also criticism that corporations had failed to establish clear standards for accurately evaluating employee performance.
In fact, when the Korea Labor Institute (KLI) surveyed nine companies that introduced performance bonuses in 1998 and then halted them, responses cited concerns that "performance bonuses could become fixed pay" and that "the expected effects did not materialize" as reasons for stopping. Most of these companies were found to have unions.
Previously, Korea Development Institute (KDI), in a 1994 report on improving the wage system to enhance wage flexibility, said, "Bonuses are a wage component that changes more flexibly with economic cycles than fixed salaries," adding, "It is not desirable to make bonuses part of the base salary."
◇ Tens of trillions in performance bonuses based on "union bargaining power," not "performance evaluation"... fairness dispute
Samsung Electronics labor and management on the 20th reached a tentative agreement to pay 10.5% of business profit as performance bonuses to employees in the semiconductor (DS) division for the next 10 years. Experts predict that Samsung Electronics will post 300 trillion won in operating profit this year. If realized, the special management performance-bonus pool is expected to reach about 31.5 trillion won.
Critics say the contents of this agreement run counter to the essence of a performance-bonus system. The union used the threat of a strike to force the company to pay large performance bonuses even to employees in money-losing divisions. In particular, the employees eligible for performance bonuses this time still will not be held accountable for business performance going forward. A business community official said, "Shop-floor workers are receiving ultra-high salaries in the multimillion-won range comparable to large-company executives, yet they do not bear risks related to future performance," adding, "Given that it is still difficult to dismiss employees, this will pose a serious threat to corporations."
There is also criticism that not paying out operating profit as dividends to shareholders harms shareholder interests. In fact, Min Kyung-kwon, head of the Korea Shareholder Activism Headquarters, a Samsung Electronics shareholder group, said that if a board resolution to ratify and implement the union's tentative agreement is put forward, the group will file a lawsuit seeking confirmation of invalidity in court. The Shareholder Activism Headquarters held a rally on the 21st near the home of Samsung Electronics Chairman Lee Jae-yong, saying, "The tentative labor-management agreement that pre-calculates 12% of pre-tax operating profit and links and allocates it as performance bonuses is illegal," and "Unless it goes through a shareholders meeting resolution procedure, it is legally null and void."
There is also an argument that operating profit should first be used as research and development funds to secure corporate competitiveness. It is said that building a single semiconductor plant requires investment in the tens of trillions of won. According to U.S. market research firm Semiconductor Intelligence (SC-IQ), this year's capital expenditure (CAPEX) by major semiconductor companies shows TSMC in first place at $54 billion, followed by Samsung Electronics at $40 billion, SK hynix at $27.4 billion, Micron at $20 billion, and Intel at $17.7 billion.
An expert said, "The semiconductor industry is a field that increases added value through massive facilities and huge research and development spending," adding, "If you are going to pay performance bonuses to employees out of operating profit generated here, shouldn't each person prove how much they contributed to performance, or the company evaluate individuals and pay differentially?"