LG's steep salary raises draw mixed reactions

LG Electronics' headquarters in Seoul / Courtesy of LG Electronics

By Baek Byung-yeul

LG Electronics and LG Innotek, the IT affiliates of LG Group, decided to raise their employees' salaries by 8.2 percent and 10 percent, respectively. In addition to these wage increases, they will also improve employee welfare programs, such as increasing parental leave to two years from the previous one year, a company official said Sunday.

The officials said the salary increases and welfare program improvements are necessary to raise morale among workers and retain talented employees, but some pointed out that excessive compensation could diminish profitability.

“The union and management recently agreed to boost the average wage increase rate this year to 8.2 percent,” an LG Electronics spokesman said, adding that the company made the decision to boost workplace morale and strengthen salary competitiveness compared to competitors. In 2021, the company raised the average wage of its employees by 9 percent, marking the largest increase in 10 years.

An LG Innotek spokeswoman also said, “The union and management reached an agreement to increase wages by an average of 10 percent.” She added, “It was the largest increase ever.”

“The purpose of the increase is to raise wages to enhance employee morale following the payment of performance bonuses of up to 1,000 percent during the previous year,” the official said.

Kim Dae-jong, a professor in the School of Business at Sejong University, said the reason such IT companies are rushing to raise compensation so much is because doing so is essential to securing quality workers.

“The core competitiveness of IT companies is based on the talented workers they have. Not only LG Group affiliates, but also Samsung Electronics, SK hynix, Naver, Kakao and even overseas IT giant Microsoft are raising their employees' wages,” he said.

“As the IT industry is the core industry of the Fourth Industrial Revolution, the cost of employees is becoming very high. In the IT industry, which has a severe workforce mobility rate, it should be seen as an inevitable aspect to prevent employees from leaving to work at rival firms,” Kim added.

Responding to criticism that excessive wage hikes are not good for the corporate bottom line, an IT industry official said, “Giving high compensation is a solid investment in the mid- to long-term growth of companies.”

“In the short term, a high wage increase can be seen as a negative factor. But the younger generation is sensitive to compensation. If companies fail to provide reasonable compensation, those young employees will easily leave. Many IT companies such as Samsung Electronics and SK hynix have also been giving a lot of incentives. On that level, companies seem to value fair compensation very much,” the official said, on condition of anonymity.

Another official from a domestic IT company said, “It seems that companies believe that uncertainties such as the trade dispute between the U.S. and China and the supply chain disruption amid the COVID-19 pandemic are greater factors to possible declines in their operating profits than salary increases.”