Samsung Electronics and its labor union have agreed to a performance bonus system that will allocate more than 10% of business performance as bonuses, including a special management performance bonus based on 10.5% of the semiconductor division's (DS) business performance, to be maintained for the next decade. While the company has specified conditions for bonus payments, such as achieving an operating profit of 200 trillion won in the DS division, concerns remain that these bonuses could be included in the average wage used to calculate severance pay, potentially increasing the company's severance obligations by more than eightfold, which could negatively impact the South Korean economy.
According to industry sources on May 21, the special management performance bonuses agreed upon by Samsung and its union are not expected to be included in the regular wage calculations. The Supreme Court's full bench ruling in 2024 stated that for bonuses to be considered part of regular wages, they must meet criteria of regularity, uniformity, and fixity. The general consensus is that this agreement does not satisfy all three conditions. Specific conditions outlined in the agreement, such as achieving 200 trillion won in operating profit in the DS division from 2026 to 2028 and 100 trillion won annually from 2029 to 2035, along with unspecified minimum payment amounts and the variability of the total fund based on 10.5% of business performance, do not qualify as 'value of labor' according to recent court rulings on regular wages.
Despite the expectation that the special management performance bonuses will not be included in regular wages, there are concerns that they could still be factored into average wages in the future. Severance pay is calculated by multiplying the average wage over the last three months before retirement by the length of service. If bonuses amounting to several hundred million won are included in the average wage, the severance pay burden on companies could increase significantly. Recently, the Supreme Court ruled that if bonuses are predetermined based on individual employee standards and exhibit a degree of 'fixity,' they should be considered in the calculation of average wages for severance pay.
If Samsung's promised separate bonuses are perceived as predetermined wages, they could indeed be included in average wages. A legal expert noted, "If this agreement is explicitly stated in the collective bargaining agreement and operates for ten years, the court may interpret that the payment obligation has been institutionally confirmed beyond mere practice. In this case, there could be an increase in lawsuits from retirees claiming average wages."
A simulation conducted by Aju Economic Research based on the performance bonuses calculated under the Samsung Electronics labor agreement indicates that the average severance pay per employee could increase sixfold compared to current levels. Assuming an average annual salary of 100 million won and one year of service, the severance pay per employee, currently at 8.2 million won, could rise to 56.7 million won, reflecting a 592% increase when factoring in the special management performance bonuses.
When converted into severance pay based on years of service, the severance pay for employees at the assistant manager and manager level with five years of service would increase from 41 million won to 283.5 million won when including bonuses. For employees with ten years of service (senior manager and department head level), severance pay would rise from 82 million won to 567 million won, and for those with twenty years of service (senior managers and executives), it would increase from 164 million won to 1.134 billion won.
Last year, Samsung Electronics had 78,000 employees in the DS division, with an average length of service of 12 years. This implies that Samsung could face an additional severance pay burden of 582 million won per employee. The total severance pay liability could increase from approximately 8 trillion won to 45 trillion won, a 463% rise. While the likelihood of this scenario materializing is low, given the court's ruling and the assumption of all employees leaving, it raises concerns within the business community about potential legal disputes in the future.
Looking ahead, a key issue will be the extent to which the conditions for performance bonuses are linked to labor outcomes. An industry source commented, "The specific conditions proposed by Samsung, such as achieving 200 trillion won in annual operating profit in the DS division, are dependent on external factors like the AI semiconductor big cycle and surging memory prices, rather than labor outcomes. If bonuses are paid under such circumstances, the connection to labor compensation may be diluted, making it less likely to be included in average wages."
* This article has been translated by AI.
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