As unions continue to demand that collective bargaining agreements specify paying a certain percentage of operating profit as performance bonuses, academia warns the demand could shake the foundations of shareholder capitalism under the Commercial Act.
The Shareholder Empowerment Research Institute (SERI) held a seminar titled "Recent strike issues from a shareholder perspective: focusing on the Samsung Group case" at the main conference room of the Korea Broadcast Advertising Corporation (KOBACO) in Jung-gu, Seoul, on the 15th. Experts who presented that day said with one voice that the union's demands are highly likely to infringe on the board's management authority and shareholders' residual claim rights.
◇Demand to allocate performance bonuses when operating profit is 0% violates the Commercial Act
First, there was criticism that the demand to allocate a certain percentage of operating profit as performance bonuses is defective under corporate law. Kwon Jae-yeol, a professor at the Kyunghee University School of Law, said, "From the perspective of the Commercial Act, operating profit, in principle, belongs to shareholders, and the disposition of profit is the exclusive authority of the general meeting of shareholders (Commercial Act Article 462)," adding, "Forcing a profit distribution formula by specifying it in a collective agreement is an act that betrays directors' duty of loyalty to act for the benefit of shareholders (Commercial Act Article 382-3)."
In particular, he criticized the union's demand as an attempt to effectively change workers' status to be similar to shareholders, who are "residual claimants." He said, "Shareholders ultimately bear the risk of stock price declines and capital losses when corporate performance deteriorates, while workers are guaranteed job security and base pay," emphasizing, "The logic of sharing only the upside while shareholders bear the loss risk creates an asymmetric risk structure that directly conflicts with the existing corporate law paradigm."
There was also an opinion that attempts to allocate bonuses by percentage could, conversely, invite demands for responsibility in the event of operating losses. Song Heon-jae, a professor in the Department of Economics at the University of Seoul, said, "If negotiations proceed by nailing down that 15% to 30% of operating profit will be taken as performance bonuses as is being demanded now, the question will be asked whether the union will take responsibility when there are operating losses," adding, "It is time for labor and management to negotiate to properly share future value, not just look at the current situation."
On the demand for paying treasury shares, he also said, "Allocating treasury shares presupposes 'distributable income' under the Commercial Act, and under the amended Commercial Act it must be approved each year at the general meeting of shareholders," explaining, "If shareholders oppose it, a legally impossible situation could arise in which the promise in the collective agreement cannot be fulfilled."
Experts proposed seeking alternatives that align with shareholder value, such as linking performance compensation systems to increases in free cash flow (FCF) excluding future investment amounts (CAPEX) rather than the size of operating profit, or combining them with restricted stock units (RSUs).
◇Emphasis on designating "essential maintenance work" to protect national strategic assets
As a policy alternative, designating the semiconductor and bio industries as "essential maintenance work" was proposed. Lee Seung-gil, president of the Korea ILO Association, said, "Under current law, semiconductors and bio do not fall under essential public interest businesses, so substitute labor cannot be deployed during strikes," adding, "To protect national strategic assets, it is urgent to supplement the legal and institutional framework so that lines in these industries do not stop."
If designated as essential maintenance work, 50% of the workforce is allowed to be replaced even during strikes. Until now, this has generally been limited to work that endangers the public's life and health, safety, or daily life. Railways, airlines, water, electricity, and hospitals currently fall under this.
He also said, "When emotional confrontation between labor and management reaches a peak, it is necessary to enhance the effectiveness of the 'cooling-off' system under which the government mandates a cooling period. The requirements for invoking emergency arbitration powers also need to be made more specific."
Meanwhile, the Samsung Biologics labor union demanded a base pay increase of at least 14.3% and an encouragement payment of 30 million won per person, allocation of 20% of operating profit as performance bonuses, and payment in treasury shares. The Samsung Electronics union is insisting on fixing the excess profit-sharing (OPI) standard at 15% of operating profit and abolishing the performance bonus cap.