The central sticking point in Samsung Electronics' (005930.KS) labor negotiations, which collapsed again in the early hours of Tuesday, is the elimination of the bonus cap and its institutionalization. Management proposed conditionally higher compensation than SK hynix (000660.KS) for its Device Solutions (DS) semiconductor division, but the union held firm on its demand to abolish the current rule capping performance bonuses at 50% of annual salary and to guarantee the change beyond next year, leaving both sides at an impasse.
According to industry sources, the mediation proposal prepared by the National Labor Relations Commission, which oversaw Samsung Electronics' post-dispute renegotiation procedure, called for maintaining the Overall Performance Incentive (OPI) system based on the economic value added (EVA) method. The proposal also stipulated that, for the DS division only, bonuses equivalent to 12% of operating profit would be paid on top of the OPI if the division ranks first in Korea in both revenue and operating profit.
The OPI is Samsung Electronics' signature performance bonus system, under which up to 50% of employees' annual salaries is paid when a business unit's performance exceeds its initial annual target. Last year, the OPI payout rate for the DS division was 47%, meaning DS employees received additional compensation equivalent to 47% of their annual salary.
Because the union has from the outset called for eliminating the bonus cap, it criticized the latest proposal for maintaining the existing rule, calling it "a step backward," and declared it unacceptable. The union had pushed until the end for scrapping the cap and setting aside 15% of operating profit as the bonus pool, beyond the "more than 10% of operating profit" previously offered by management. During the renegotiation, the union reportedly offered to lower the cash bonus to 13% of operating profit while demanding stock compensation equivalent to the remaining 2 percentage points, effectively holding to its 15% pool demand and failing to narrow differences with management.
The union also objected to the fact that the 12%-of-operating-profit offer for the DS division was conditional on surpassing SK hynix, and that the proposal itself would apply only to this year without being guaranteed beyond next year. "The union's demands are the abolition of the cap, transparency and institutionalization," the union said. "It is not desirable to leave our performance to external factors, and we cannot accept a one-off measure, so we declared the talks broken down."
Samsung Electronics, for its part, raised concerns that if the bonus pool were to surge to 15% of operating profit, labor costs would become excessive, potentially curbing future investments such as infrastructure expansion, research and development, and mergers and acquisitions for new businesses. The company also raised fairness concerns with employees of the Device Experience (DX) finished-products division, who would effectively receive little benefit due to sluggish performance even if 15% of operating profit were paid out as bonuses without a cap.
The company's position is that even when the DS division was suffering losses, it steadily ramped up investment in semiconductor fabs and R&D through even distribution of resources across the company, and therefore it is difficult to make major changes to the bonus policy just because a boom period has arrived. After the breakdown, Samsung Electronics said, "The union has rejected the company's flexible institutionalization based on business performance and has consistently insisted only on rigid institutionalization," adding, "We will continue our efforts to prevent a worst-case scenario."
The union has announced a general strike starting on the 21st involving approximately 50,000 members. Concerns are growing that Samsung Electronics' annual operating profit could shrink by 40 trillion won and that global Big Tech customers that have relied on the company could shift their memory supply chains. The government plans to seek additional mediation measures.
