Samsung pay deal marks seismic change for South Korea

SEOUL: The deal Samsung Electronics struck with its union averts a massive strike and gives its memory chip workers eye-popping bonuses. It also opens a Pandora's box for companies in South Korea — a country known for militant wage-bargaining.
Unionised Samsung workers voted in favour of the government-mediated pact on Wednesday, marking the first big win for a Samsung union. More significantly, it is only the second time that a major South Korean company has agreed in writing to reward workers with a fixed percentage of operating profit.
With profits skyrocketing due to the AI boom and under pressure to narrow its bonus gap with rival chipmaker SK Hynix, Samsung agreed to allocate 10.5 per cent of its semiconductor operating profit to special bonuses for chip workers. Some memory chip workers are set to receive total bonuses of $416,000.
A cap limiting special bonuses linked to a unit's performance to 50 per cent of a worker's salary was also abolished. Moreover, the deal covers 10 years of earnings.
A NEW FIRE AS ASSUMPTIONS SHATTERED
Those decisions by Samsung — a bellwether for South Korea Inc — are likely to harden the stances of other domestic unions also demanding employees be rewarded from operating profit and could embolden more to follow suit.
'It could start a new fire at other big companies in Korea,' said Kim Keechang, a professor of law at Korea University. 'It might be ⁠only the beginning.'
He noted that the deal goes against long-standing global norms about corporate earnings. Bonuses are normally calculated after taxes are paid and Samsung's chip workers have de facto jumped the queue in claiming their share of the company's riches.
Even the country's union-friendly President Lee Jae Myung expressed concern ahead of the deal being struck.
'To institutionally share a certain proportion of operating profit before taking out taxes, which can be called the public's common share — that is something even investors cannot do,' Lee told a cabinet meeting last week. 'Even investors receive dividends from net income after taxes are paid, don't they?'
'This agreement reflects Samsung Electronics' special circumstances and labour groups should not generalise it and spread excessive bonus demands across industry,' the Korea Enterprises Federation said in a statement.
OTHER UNIONS WANT SIMILAR DEALS
Samsung may have had no choice but to cave, with its memory chip workers furious about the bonus gap with SK Hynix and, according to its union, leaving for its rival in droves. Without the deal, which was less generous than SK Hynix's, 48,000 workers would have gone on strike for 18 days.
According to media reports, SK Hynix allocated 10 per cent of operating profit to bonuses last year, changing its cap on bonuses. Under its new pay structure, chip workers are said to be getting close to 3,000 per cent of their base salary in bonus for the past financial year.— Reuters