Korea's industrial sector is in turmoil over wage negotiations. For employees, wage negotiations serve as a harsh yet honest report card that prices the value of "me" as a product. At the same time, they function as a litmus test for social hierarchy, intertwined with the self-esteem of organizational members. For this reason, the results of wage negotiations carry multi-layered meanings beyond the mere "buying and selling of labor." Comparisons with other companies inevitably follow.
This year, other companies are being particularly shaken up by SK hynix's bonus issue. The disruption stems from hynix wrapping up its wage negotiations early in the second half of last year, effectively making itself a reference point. hynix's bonus provisions, in particular, are a hot potato. The framework "fixes" 10% of operating profit as the bonus pool and removes the ceiling. Under the payment method, 80% of the amount is paid in cash at once, while 20% is deferred over the following two years. As a result, an astronomical 4.5 trillion won in cash was disbursed in February, becoming an object of envy and jealousy for other companies. Indeed, Samsung Electronics' (005930.KS) union is demanding 15% of operating profit as bonuses, while Hyundai Motor's (005380.KS) union is demanding 30% of net profit. Wage negotiations between individual companies appear to have degenerated into a competition over bonus ratios.
Watching such commotion, one naturally comes to think that this is the right time to properly build a Korean-style bonus model. If the American model concentrates astronomical rewards on one or two "superstars," Korea needs a different approach. A direction should be set of "protecting core talent thickly while refraining from universal cash handouts."
In hynix's case, there are not a few blind spots based on its particular circumstances that make it unsuitable as a benchmarking target for bonus models. For one, it is an aggressive reward system designed during a super-boom, so its sustainability is weak. The memory industry is highly volatile. The moment bonuses become effectively fixed rather than variable costs, companies lose options during downturns. Above all, semiconductors are capital-intensive. Massive facility investments and research and development (R&D) are essential. Because of these characteristics, a structure that links profits to bonuses can drag down corporate strength and future growth.
The emphasis on immediate cash payments rather than mid-to-long-term compensation is also burdensome. The United States also provides substantial cash compensation, but what differs is that rewards for core talent are tied up in long-term stock-based plans. Shares must be held for a certain period, or the recipient must remain employed, to fully become one's own. This measure is designed to prevent core talent from pocketing bonuses and jumping ship. Of course, even in this case, there are side effects: issuing new shares dilutes existing shareholders' stakes, and excessive rewards can be concentrated on specific individuals. Even so, stock-based payments carry a greater positive function of forcing a sense of ownership — "my pockets fatten only when the company does well" — rather than "money I receive just for showing up at the company."
In fact, the Korean situation, which favors short-term compensation — and cash payments at that — as bonuses, can be seen as a reflection of employees' anxiety. Since the job security of large corporations is weak, the collective psychology of needing to secure a sure share while the money is there easily translates into short-term compensation. In particular, Korean culture's tendency to avoid friction within organizations as much as possible, and the practical difficulty of selecting talent, are also cited as constraining factors. Even so, efforts to minimize the inefficiency of compensation — where everyone receives the same bonus — are absolutely necessary.
On closer examination, the current period is a transition in which the standards of compensation are being shaken. The spread of artificial intelligence (AI) is leading to a semiconductor super-boom and transforming the very profit structures of industries. The problem is that this change is immediately spreading into compensation competition among companies. Compensation should not become a fuse that distorts capital allocation — which varies vastly by company circumstances — rather than motivating workers.
If companies become consumed by a pride-driven race, it will lead to compensation inflation and ultimately exact a price in the form of damaged industrial competitiveness. The brakes must be applied before this turns into a race toward mutual destruction. Companies must maintain financial discipline, and shareholders need to hold them accountable for any deviations. If the standards of compensation are not properly established, not only will mainstay industries decline, but the advancement of Korea's stock market will also likely end up as an empty slogan.
