['N% Performance Bonus' Aftermath]② Industry-Level Distribution Rules Must Be Refined

Detailed Rules for Performance Bonus Thresholds in the US
Need for Clear Standards on Operating Profit, Net Profit, etc.
Payment Method—Stock or Cash—Should Also Be Specified

Editor's NoteThe question of how to distribute corporate performance is no longer just a matter for labor-management negotiations, but has become a major topic across the entire industry. The debate over performance-based bonuses linked to operating profit, which began in the semiconductor sector, has now spread to the automobile, shipbuilding, and information technology sectors, and has even resulted in demands from subcontractor unions for profit sharing with parent companies. However, the discussion remains focused on how much more should be distributed, rather than establishing a social consensus on who should allocate performance pay and according to what rules and procedures. Although there is talk of adopting the American-style performance reward system, the supporting concepts of employment flexibility or industry-wide allocation criteria remain mostly absent from discussion. Performance allocation without clear rules risks not only widening internal corporate disparities, but could also escalate into conflict throughout the industrial ecosystem and broader society. The Asia Business Daily examines the challenges posed by the "N% performance bonus" debate through interviews and columns featuring the opinions of experts.

There is now a suggestion that the next task in the performance bonus debate should be to establish well-defined distribution rules at the industry level. It has been pointed out that if the system simply defines shares to be distributed when profits increase, but lacks provisions for who bears the risk when business turns downward, such disputes will inevitably recur. As a reference point, the collective bargaining agreement between General Motors (GM) and the United Auto Workers (UAW) in the United States has been cited.

Lee Jonghoon, Professor Emeritus at Myongji University, explained, "The profit-sharing systems of major U.S. corporations often settle base wage negotiations in a single page, but set out detailed rulebooks stipulating the criteria for bonus allocation and the upper limit of the shared ratio." He noted that even at sites where labor unions wield the strongest bargaining power, the rules for distributing performance pay are clearly articulated and documented.

Professor Lee pointed out that the rules should first establish which benchmarks will be used: Is it operating profit or post-tax net profit? What thresholds trigger the bonus? What percentage of the excess is shared? Is it paid in cash or in shares? How should differences among business units and individuals be considered? All these are essential parts of the rules. "This time, the negotiations concluded without clearly defining such principles," Professor Lee said.

The design of the threshold itself is seen as an important issue. In the recent Samsung Electronics agreement, if the Device Solutions (DS) division achieves operating profits above a certain scale, a predetermined ratio is applied to business performance agreed between management and labor to calculate the bonus pool. In contrast, U.S. corporations have various systems, but it is common for the bonus ratio to apply only to the portion of profits that exceed a defined level. Experts point out that, in structures where the bonus pool expands significantly the moment the threshold is breached, there could be greater incentives to manipulate revenue recognition or contract timing, making the threshold design crucial.

Some analysts noted that the plan to grant bonuses in company shares could cause problems in the future. If the share issuance plan fails to win board approval, the agreement may not be implemented. Professor Lee said, "Since this is specified in the collective agreement with the union, it is legally binding and must be carried out. Ultimately, the company incurs a debt and the employees acquire a credit, which could also lead to litigation."

There is also a call to ensure the distribution process is clear and convincing. Hwang Yongyeon, Director of Labor Policy at the Korea Employers Federation, stated, "All major U.S. big tech companies have compensation determined by the compensation committee, a board subcommittee that includes management. In Germany, the works council discusses such issues, but the final decision is subject to prior approval by the board of directors." He noted that as the scale of distribution grows, lack of due process means the outcome could depend excessively on that year’s bargaining power.

Another unresolved issue is how broadly the distribution should extend. If performance bonuses are allocated only between parent companies and union members, there is concern that this will actually deepen the dual structure of the labor market.

Jung Seungil, Policy Committee Member at the Welfare State Society, argued, "Rather than having surplus profits simply accumulate within large companies or used only for bonuses to union members, we should establish a semiconductor ecosystem fund to be shared with partner companies." He pointed out that subcontractors with low profit margins have difficulty securing resources for workforce training and welfare. If large corporations continue poaching experienced personnel trained by smaller firms, the smaller partners could lose the incentive and means to invest in human resources altogether.

This content was produced with the assistance of AI translation services.