Performance-Bonus Talks Thrown Into Disarray by Hardline Demands from Major-Company Unions...Confusion Inevitable from Next Year’s Wage and Collective Bargaining Negotiations

[Financial News] The government’s interpretation that the “n% performance bonus” issue sparked by labor-management negotiations at major companies, including Samsung Electronics, is not subject to mandatory bargaining has sent repercussions throughout the labor sector. With management’s potential avoidance of negotiations and labor unions’ possible attempts to bargain indirectly through base pay still causing concern, confusion appears inevitable starting with next year’s wage and collective bargaining negotiations.■ Blocking n% performance bonuses...Unions shot themselves in the footOn the 3rd, the Ministry of Employment and Labor announced the “Implementation Guidelines on the Subject Matter of Labor Disputes, Including Management Performance Bonuses,” which specifies the scope of labor disputes. The announcement came a month and a half after President Lee Jae Myung ordered revisions to the guidelines under the Trade Union Act.
The key point of the guidelines is that they establish criteria for negotiations over performance bonuses linked to corporate profits and large-scale investments in mega-projects, issues raised this year mainly by unions at major companies.
Regarding performance-bonus negotiations, which have remained controversial throughout the year, the guidelines make clear that management performance bonuses linked to a fixed percentage of a company’s profits are difficult to regard as a mandatory bargaining subject or as subject to mediation and industrial action under the Trade Union Act. The interpretation also states that negotiations over bonuses linked not only to operating profit, which does not reflect corporate tax or dividends, but also to net income, which includes non-operating expenses, are not mandatory bargaining subjects.
As a result, negotiations over the n% performance bonus demanded by unions this year are highly likely to become virtually impossible starting next year. MOEL plans to provide administrative guidance through the Labor Relations Commission’s mediation functions if unions do not follow the interpretation of the guidelines.
An MOEL official explained, "Wages differ from a performance bonus that sets aside n% of operating profit because there is room to determine wages while taking taxes and shareholder dividends into account." Ultimately, as experts have previously diagnosed, whether a performance bonus is subject to bargaining is expected to depend on its nature, including whether it qualifies as wages.
MOEL also clarified through the guidelines when negotiations over business-management decisions are possible and when they are not. This concerns an issue on which the Samsung Electronics union had announced it would seek negotiations next year over the Honam semiconductor project. In effect, agenda items that unions had strongly demanded will return as a boomerang from next year in the form of “non-negotiable” issues.■ Confusion in next year’s wage and collective bargaining negotiations inevitableBoth labor and management reacted strongly. Labor groups called for the guidelines to be “scrapped immediately,” arguing that they excessively narrow the scope of bargaining and give management more room to avoid negotiations. Management, meanwhile, remains concerned that the guidelines are still ambiguous and that labor unions could apply pressure through indirect bargaining over base pay and other items. Business groups argue that the guidelines or an enforcement decree should make it clearer that performance bonuses and personnel assignments are not subject to bargaining or strikes.
There are also concerns that the gray area between performance-bonus and wage negotiations could instead reduce predictability in bargaining. The Federation of Korean Trade Unions said, "It means that the same management performance bonus is not subject to bargaining or industrial action if it is demanded based on operating profit, but is negotiable if it is demanded based on base pay or annual salary." It added, "Under the guidelines, unions will have no choice but to newly demand the amount or payment rate for each year. Ultimately, negotiations and conflicts will be repeated through demands for a certain percentage of base pay or annual salary, or for a fixed payment."
In addition, while the guidelines conflict with the wage and collective agreements reached this year by Samsung Electronics and many other major companies, they cannot be applied retroactively to collective agreements that have already been concluded. The government’s new interpretation is therefore expected to create even greater confusion starting with next year’s wage and collective bargaining negotiations.
For example, Samsung Electronics and its union agreed in this year’s negotiations to apply a special management performance bonus linked to operating profit for 10 years. Observers point out that the two sides could clash over how to interpret such a condition starting with next year’s negotiations.
Regarding the issue, an MOEL official replied, "It is difficult to address diverse and specific cases uniformly," but added, "The guidelines do not invalidate a collective agreement concluded through an existing agreement between labor and management."
[email protected] Kim Jun-hyeok Reporter