'Operating profit percentage' bonus demands spread to smaller firms, leaving labor, management and government at an impasse

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Participants hold placards at a general strike rally organized by the Korean Confederation of Trade Unions near Dongwha Duty Free in Jongno-gu, Seoul, on July 15. [Yonhap]

The summer heat has arrived in full force — and so has wage and collective bargaining season, which every year brings a surge in industrial action. This year, a growing number of unions are demanding bonuses pegged to a fixed percentage of operating profit, a demand with few precedents. As the trend spreads beyond major conglomerates, the government appears caught off guard — enough so that the president himself has called for corrective measures. Legally reining in the practice, however, looks far from straightforward.

The story begins in Busan. Leeno Industrial, the company with the largest market capitalization among Busan-based firms, is a global small and medium-sized enterprise in semiconductor materials, parts and equipment. It makes critical components including the "Leeno pin," used to test whether semiconductors are functioning properly.

The company's union launched a full strike on Thursday — the first in the company's history since the union was formed on March 20 this year. If the production line comes to a complete halt, losses could exceed 2 billion won ($1.36 million) a day, and a prolonged walkout raises fears that Leeno could cede its global No. 1 position to rival manufacturers in Japan and Taiwan.

The union is making two core demands: that the current performance-based bonus — which varies each year depending on business results — be replaced with a fixed annual bonus of 800 percent of base pay, and that an additional bonus equal to 15 percent of the company's operating profit be paid on top of that.

"During last year's semiconductor boom, we worked 62 hours a week and couldn't even take our annual leave properly — and if we did take leave, we had to submit a written explanation, which was then used as grounds to cut our bonuses," a union official said. "We need to shift from a pay structure that compensates for low base salaries through year-end bonuses to one centered on stable fixed pay."

Demands to restructure pay by converting performance bonuses into fixed compensation have long been treated as legitimate subjects for collective bargaining under existing labor law. What has drawn attention recently, however, is the push to tie bonuses directly to a percentage of operating profit. That demand has now spread well beyond the unions at large conglomerates such as Samsung Electronics, SK hynix and Hyundai Motor, cutting across industries and company sizes.

President Lee: 'There's no end to this if it goes on like this'

The revised Trade Union Act — commonly known as the "yellow envelope law" — has brought performance bonuses within the scope of labor disputes, and the fallout is intensifying. After Samsung Electronics' union reached a landmark agreement on bonuses worth hundreds of millions of won, unions at major companies began lining up to demand their own share of operating profit. Kakao's union has already gone on strike demanding 15 percent of operating profit as bonuses, while Hyundai Motor's union launched a partial strike seeking 30 percent of net profit.

President Lee Jae Myung speaks at a Cabinet meeting held at Cheong Wa Dae on Tuesday. [Yonhap]

As the situation grew more serious, President Lee Jae Myung delivered a pointed rebuke at a Cabinet meeting on Tuesday. "The scope of labor disputes seems to be expanding far too broadly," Lee said. "Can demanding a certain percentage of operating profit really be a subject of labor dispute? Even shareholders can't do that."

The Samsung Electronics union has also declared that the establishment of a new semiconductor fab in the Honam region — referring to the Gwangju area — will be treated as an agenda item in wage and collective bargaining talks. In effect, the union is signaling its intent to weigh in on what is fundamentally a management decision.

Lee addressed that issue directly as well. "It seems they are claiming it as a subject of labor dispute because building a factory in Gwangju might mean some workers get transferred," he said. "By that logic, there is nothing in a company's exercise of management rights that would be unrelated. Inheritance, the sale of management control — all of it would become a problem. There is no end to this if it goes on like this."

Lee directed Minister of Employment and Labor Kim Young-hoon to establish clear standards for applying the revised Trade Union Act. "Isn't it the case that disputes are breaking out everywhere between unions and management over what does and doesn't fall under the revised law?" Lee said. "Before the courts weigh in, set out the standards through presidential decree, enforcement rules, guidelines and public notices. That is how social conflict gets reduced. Without clear standards, people make outlandish claims."

Curbs on 'operating profit percentage' bonuses likely to remain contentious

Union members chant slogans at a rally held by the Samsung Electronics Joint Labor Union Struggle Committee in front of Samsung Electronics' Pyeongtaek campus in Gyeonggi Province on April 23. [Yonhap]

In practice, experts say spelling out the boundaries of labor disputes under the revised Trade Union Act will be no easy task. "Can you really say that demanding up to 50 percent of annual salary as a bonus is a legitimate subject of dispute but anything above that is not?" one labor law professor said. "The Ministry of Employment and Labor is not a legislative body — setting those standards will be extremely difficult. Every company's situation is completely different. Ten percent of operating profit means something entirely different at a large conglomerate than it does at a small or medium-sized enterprise."

Anticipating those limits, the government appears to be preparing legal measures on a second front to check the spread of operating-profit-linked bonus demands. The plan envisions a two-track approach: using enforcement decrees to curb abuses of the revised Trade Union Act, while also creating statutory safeguards — such as requiring board approval — through amendments to the Commercial Act and the Financial Investment Services and Capital Markets Act. The government has recently gathered opinions from legal and labor experts on the direction of those amendments and held closed-door meetings with business groups.

Neither track looks easy, however. Criticism is already mounting that the government is moving to restrict fundamental labor rights. The Korean Confederation of Trade Unions said the measures "directly negate the legislative intent of the revised Trade Union Act and restrict workers' legitimate exercise of their rights," while the Federation of Korean Trade Unions warned they would "in effect curtail the basic labor rights that the National Assembly expanded through legislation."

Choi Seung-ho, chairman of the Samsung Electronics branch of the Samsung Group cross-enterprise union, said in a recent media interview that if performance bonuses had never been considered a subject of labor dispute, the National Labor Relations Commission would not have accepted them as a bargaining item in the first place. "The commission's public-interest members also advised that this matter could be discussed at the bargaining table," he said. "This is an issue that must take into account the bargaining practices and relationships that labor and management have built up over time."

On the planned Honam semiconductor fab, Choi said: "As the Ministry of Employment and Labor's own materials have indicated, matters that affect working conditions are understood to be subject to bargaining. Running a second-phase fab will inevitably require current employees to relocate. If improvements to working conditions are not addressed first, we intend to put it on the bargaining agenda."

Amending the Commercial Act and related laws to create legal checks also faces significant hurdles. Proposals such as making board approval mandatory have been floated, but critics warn that executives would find it difficult to escape liability for breach of fiduciary duty. Requiring a shareholder vote would likewise risk infringing on the foundational principle of management autonomy enshrined in corporate law.

Many observers trace the current tangle back to the Ministry of Employment and Labor's active mediation of the Samsung Electronics bonus agreement. Before any serious institutional deliberation had taken place on whether performance bonuses could be a subject of labor dispute, the ministry effectively interpreted the revised law as including them within that scope.

"There is case law holding that performance bonuses are not subject to labor action, yet the ministry stepped in aggressively as a mediator and made the situation much harder to manage," a business community official said. "If it had been made clear from the outset that performance bonuses fall outside the scope of labor disputes, the debate over legal mechanisms to check operating-profit-linked bonus demands would never have gotten this far." For unions, management and the government alike, the yellow envelope law has left no one with reason to smile.

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