This is a complaint from an executive of Company A, who achieved the highest performance last year. The government and the ruling party threw up the profit-sharing system as a hot topic before Company A, which had the largest sales since its inception, enjoyed the joy of exceeding its target. Even in the difficult situation of Corona 19, companies that have made profits are required to share the fruits of the affected small and medium-sized businesses and self-employed people. The government also established a policy to legislate the benefit-sharing system.
In the National Assembly, five special laws were proposed to regulate platform companies such as Naver, Kakao, and the People of Delivery (elegant brothers), straining the industry. These bills contained a concept that was not found in the existing legal system, called’transparency of transactions’. As the influence of platform companies increased and voices of need to regulate them grew, related legislation was enacted in a row. Government ministries, such as the Fair Trade Commission and Korea Communications Commission, are warring against each other, saying they will have regulatory rights.
Korea is stigmatized as’a country that is difficult to do business’ due to a surge in regulatory legislation by the government and the ruling party. In December of last year, the National Assembly handled amendments to the Commercial Act, Fair Trade Act, and Financial Complex Business Group Act, saying that it will realize a fair economy. The contents that companies expressed difficulties, such as separate election of audit committee members, maintenance of exclusive complaints, and increase of fines were included.
The National Federation of Entrepreneurs surveyed 230 companies about the reinforcement of corporate regulations. As a result, 37.3% said they would cut employment and 27.2% said they would reduce domestic investment. 21.8% of companies plan to move their factories and corporations overseas.
There are criticisms that Coupang, who has grown into a leading domestic commerce company after 11 years of establishment, chose the US stock market rather than Korea because of the government’s misconception about corporate governance. As the government intensively pursued policies in the direction of weakening corporate governance, it has become difficult for unicorn companies that grew up with venture capital (VC) investments to defend their management rights in Korea. Some say that the second and third coupangs are waiting in line.
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Companies with even a slight improvement in performance are also suffering from internal pressure to raise their annual salaries and incentives. Starting with SK Hynix, Samsung Electronics, LG Electronics, SK Telecom, and Naver are having a conflict between labor and management over performance pay standards.
On the 25th, Naver will hold a briefing session on the criteria for paying incentives for employees. This is because the union expressed dissatisfaction with the measure that the company decided to pay incentives at the same level as in 2019, even though the company achieved the highest performance in history. Naver went through the process of explaining the rate of increase in performance pay by grade in the name of CEO Han Sung-sook last month, but plans to set up a seat once more to explain further.
SK Telecom, which faced similar controversy over incentive pay, also decided to improve the incentive system by forming a joint task force (TF) with the union when employees complained. Employees’ complaints were raised when LG CNS was also paying incentives similar to the previous year in a situation where the highest performance was expected last year. When Nexon and Netmarble, the largest game companies in Korea, announced that they would raise the annual salary of all employees by 8 million won, other similar companies are also demanding unprecedented compensation plans.
The controversy over incentive pay was triggered by SK Hynix. On the 28th of last month, SK Hynix announced that it would pay 400% of its basic salary in excess profit distribution (PS), and it was a consensus of its employees. Last year’s operating profit increased 84% compared to 2019, but PS was paid at the same level.
The controversy escalated as it became known that a fourth-year employee sent an e-mail to CEO Lee Seok-hee to disclose the criteria for paying incentives. Accordingly, after discussing with the labor union, SK hynix changed the PS payment standard to a method of paying in conjunction with operating profit rather than economic value added (EVA). While EVA is not disclosed externally, operating profit is a public indicator, which is interpreted as showing the company’s willingness to transparently pay incentives. It also paid treasury stock to prevent employees from leaving. Employees can receive stocks equivalent to 200% of the base salary for free (4 years obligatory holding) or buy them at a 30% discount (one year obligatory holding).
The Samsung Electronics union is also complaining about performance pay. Samsung Electronics has a target achievement incentive (TAI), which is paid in the first and second half of the business division and division evaluation based on performance, and an excess profit bonus (OPI) at the beginning of the year when the division’s performance exceeds the target. Last year, the semiconductor division received 100% of the basic salary as TAI and 43-46% of the annual salary as OPI. The IT and Mobile (IM) division received 75% of the basic salary as TAI and 41-47% of the annual salary as OPI. In the home appliance sector, TAI is 100% of basic salary, and OPI is 28~34% of annual salary. The unions under the Korean Federation of Trade Unions of eight companies in the Samsung Group held a press conference on the 8th and argued that OPI is being applied in a way that is unfavorable to workers.
Professor Lee Byung-tae of KAIST Business School said, “This is what happens as the strangely distorted concept of economic democratization has spread for a long time.” “Companies are the property of shareholders, and social pressure on companies cannot be found in other countries. In the case of profits, it must be returned to shareholders or used for investment according to management judgment, but it is not a natural right to share them immediately.”
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