Move aims to rein in spread of 'N% of operating profit' bonus demands sparked by Samsung Electronics, SK Hynix

Members of the Investor Protection Association, a group representing minority shareholders, hold a press conference in front of Seoul City Hall on June 6 to oppose "N% bonus" agreements between major companies and their unions and to call for the establishment of an investor protection agency. [Yonhap]
Members of the Investor Protection Association, a group representing minority shareholders, hold a press conference in front of Seoul City Hall on June 6 to oppose "N% bonus" agreements between major companies and their unions and to call for the establishment of an investor protection agency. [Yonhap]

The government is reviewing a plan to require mandatory board review and shareholder approval before companies can finalize performance bonus packages. The move comes as demands for bonuses tied to a fixed percentage of operating profit spread across industries following disputes at Samsung Electronics and SK Hynix.

The Ministry of Trade, Industry and Energy is examining reform measures along those lines, government officials said Wednesday.

A senior ministry official said performance bonuses without a wage component are unrelated to working conditions and therefore cannot fundamentally be subject to labor disputes. "We are reviewing a direction that would establish internal deliberation and control procedures requiring the board of directors to review bonuses above a certain threshold in advance and put them to a shareholder vote," the official said.

The official added that amendments to the Commercial Act or the Capital Markets Act are also under consideration, but noted that legislative changes require National Assembly procedures and take time. "We plan to first consult with related ministries on whether adjustments can be made through presidential decrees," the official said.

The government is moving quickly on reform because record-breaking bonuses paid at Samsung Electronics and SK Hynix during an unprecedented semiconductor boom have prompted labor groups in other sectors — including automobiles and shipbuilding — to demand that a set percentage of operating profit be paid out as bonuses.

The government views the current structure, in which shareholders are in effect excluded from decisions on how operating profit is distributed, as unreasonable. The aim is to establish a fair compensation framework for shareholders who bear investment risk and to bring contentious labor-management disputes over bonuses under institutional control.

Industry Minister Kim Jung-kwan said at a press briefing on June 22 that operating profit involves not just management and unions but also investors who entered the company accepting the possibility of losses. "It is not right for performance bonuses to become the subject of labor disputes," he said.

Kim said workers have the guaranteed baseline of a monthly salary, and that compensation for investors who bear risk should therefore be treated differently from that of unions and management. "The investor's perspective has been left out of the discussion, and institutional remedies are needed," he said.

Cheong Wa Dae also characterized the situation as exceptional and lent its weight to the push for reform. Kim Yong-beom, the presidential chief of staff for policy, said at a press forum Wednesday that labor-management negotiations traditionally center on wages with other conditions as secondary, but that the secondary element — bonuses — has now grown larger than the primary one. "This is the world's first case of its kind," he said.

Kim added that whether performance bonuses can be subject to labor disputes requires broad social discussion. "We need to have that discussion and establish new rules," he said.


oskymoon@heraldcorp.com