Samsung, Hyundai see increasing labor risk after SK lifts incentive cap

A Samsung flag waves at the firm's office in Seoul in this undated photo. Yonhap

Samsung Electronics and Hyundai Motor are facing a major labor challenge, as their unionized workers are expected to urge management to lift incentive caps following SK hynix’s recent decision to abolish the upper limit on the company’s profit-sharing incentive system in an agreement with its labor union Monday.

Earlier, the chipmaker offered a one-time incentive of up to 1,000 percent of employee base salary each year, but the new agreement removes the ceiling. SK hynix will also provide 10 percent of its total annual operating profit as incentives to employees and executives.

This will enable each employee from the company to receive some 100 million won ($72,000) on average this year as an incentive, according to the firm’s annual earnings projection. The company reported an operating profit of 9.21 trillion won in the second quarter based on solid sales of its high-bandwidth memory (HBM) chips, up 68 percent from the previous year.

In response, labor unions from other major Korean conglomerates are stepping up pressure on management, urging them to follow in the footsteps of SK hynix.

A coalition of Samsung Group’s five labor unions sent an official letter on Tuesday to Samsung Electronics Executive Chairman Lee Jae-yong, urging him to revamp their bonus system.

“Samsung Electronics still sticks to an opaque economic value-added (EVA) incentive system, which is hard to calculate exactly,” a labor union representative from Samsung Electronics said in a letter to Lee and the firm’s top executives.

Under the EVA bonus system, Samsung Electronics offers incentives after deducting corporate taxes and investments from its operating profits. This means employees may end up with fewer incentives, depending on the firm’s investment decisions.

The union has taken issue with weak reliability and corporate transparency in the EVA system, as management does not share detailed figures that would allow employees to calculate bonuses.

Hyundai Motor union workers stage a protest in front of its factory in Ulsan, June 26. Yonhap

Union members at Hyundai Motor may also make a similar demand during ongoing wage negotiations. The carmaker’s union is urging management to offer an incentive from 30 percent of last year's total net profit.

Industry officials said that realistically, it is difficult for Samsung, Hyundai and most other conglomerates to manage union demands, as the case of SK hynix is unique due to the firm’s unprecedentedly strong success in HBM chip sales amid the rise of artificial intelligence.

“SK hynix reported a surprising operating profit-to-sales ratio of 41 percent in the second quarter, a figure that is rarely reported by most other manufacturing players here,” an official from a conglomerate said.

The combined operating profit-to-sales ratio of Hyundai Motor and Kia reached 8.7 percent between April and June. The figure is a key barometer to determine the profitability of manufacturing firms. Samsung Electronics came in at just 6.7 percent during the same period.