Huge performance bonuses before dividend and tax calculations? Some warn of possible breach of trust concerns [Samsung Electronics bonus fallout]

The compensation models at SK hynix and Samsung Electronics, which tie corporate operating profit to bonus funding, are increasingly likely to face legal controversy in the future. Critics are questioning whether it is appropriate to pay workers bonuses worth hundreds of millions of won before calculating shareholder and investor returns and corporate taxes. There is also growing concern that excessive bonus payments could reduce dividend capacity, increase investment burdens, and weaken company growth, ultimately undermining shareholder value. Moreover, Samsung Electronics and SK hynix are Korea's No. 1 and No. 2 listed companies by market capitalization on the KOSPI, making them widely regarded as 'people's stocks.'
Shareholders have even raised the possibility of filing a lawsuit to invalidate the tentative agreement that Samsung Electronics' management and labor union reached dramatically on the 20th. They argue that the decision could violate the Commercial Act's duty of loyalty to shareholders and its provisions on breach of trust, since it may cause significant harm to the company and its shareholders. If litigation moves forward, observers say Samsung Electronics' top executives would face legal and managerial pressure regardless of whether they are ultimately found guilty.
■ Shareholders threaten legal action
According to industry sources on the 21st, the tentative agreement reached the previous day includes a plan to establish a new 'Special Performance Bonus' limited to the Device Solutions Division (DS Division), which handles the semiconductor business. The structure would provide an additional special bonus for the DS Division on top of the existing Performance Incentive (OPI). It also includes a provision that the special bonus will be paid entirely in treasury shares after tax. The key issue is the funding source for the DS Division's special bonus. The tentative agreement sets that pool at 10.5% of 'business performance,' a term chosen by labor and management. Although the exact standard for business performance was not specified, the industry broadly interprets it as operating profit. Given that OPI is roughly 1.5% of operating profit, DS Division members would receive as much as 12% of total operating profit.
Shareholder groups say the matter is directly tied to the distribution of company profits, so separate procedures such as approval at a shareholders' meeting are necessary. The Samsung Electronics minority shareholder coalition's shareholder movement headquarters and the Samsung Electronics Shareholder Action Headquarters each held rallies in the Itaewon-ro area of Yongsan-gu, Seoul, on the day, making clear that they would pursue legal action if the agreement is concluded without gathering shareholder views through a general meeting or other procedures. They also warned that if management accepts the bonus demand through a board resolution, they would take legal steps for breach of directors' duty of loyalty and occupational breach of trust.
■ Fears of a repeat of the 'judicial risk nightmare'
The legal community is generally cautious about whether the elements of breach of trust are met. The reason is that the move could be seen as an unavoidable management decision intended to prevent the worst-case scenario of a strike.
Choi Joon-sun, a professor at Sungkyunkwan University School of Law, said, "Since the Commercial Act was revised last year to emphasize that directors must protect shareholder interests, the argument for breach of trust could also be viable." He added, however, "Because this was a response to the threat of a strike, whether breach of trust is actually established appears to require a separate judgment."
A presiding judge who requested anonymity said the bonus expansion could be interpreted as a management decision aimed at boosting workers' motivation and productivity. He explained, "Breach of trust may be raised on the grounds that shareholder interests were harmed, but the business judgment rule must also be considered." He added, "Even if the company suffers losses, if the action was taken out of business necessity, that can be a factor in avoiding criminal punishment."
The problem is the possibility of a renewed judicial risk. In Samsung Electronics' case, Chairman Lee Jae-yong and other executives have faced substantial constraints on management activities for about a decade because of legal risks. Even now, a number of former and current employees are still on trial. In that situation, if shareholders launch collective action against the company, it would inevitably face a new round of judicial risk, observers say.
one1@fnnews.com Jeong Won-il Kim Dong-gyu Lee Dong-hyeok Reporter