Gov't push for profit-sharing angers conglomerates

Democratic Party of Korea (DPK) Chairman Rep. Lee Nak-yon proposes a highly controversial profit-sharing scheme during the party's Supreme Council meeting at the National Assembly in Seoul on Jan. 10. / Yonhap

By Kim Hyun-bin

Controversy has been rising since ruling Democratic Party of Korea (DPK) chief Lee Nak-yon proposed a profit-sharing scheme on Jan. 10 encouraging profitable companies to distribute part of their profits to companies that have been hit hard by the COVID-19 pandemic and vulnerable social groups.

The ruling party says the measures are "voluntary" and will offer various government incentives in exchange including tax breaks.

"In Europe, those who are prosperous in the pandemic are called economic winners from the COVID-19 crisis and are required to fulfill their social responsibility," Lee said during last week's party meeting.

Typically a profit-sharing concept calls for companies to distribute part of their earnings "voluntarily" to contractors based on certain benchmarks of performance. For manufacturers, gains from the sale of items assembled could be distributed to those who helped in the production cycle.

However, the government has been aiming to create funds derived from voluntary contributions given by large companies to aid struggling small businesses and the socially vulnerable.

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"There are companies that performed well amid the pandemic. Companies that made profits creating a fund to help out small businesses and vulnerable social groups would be a good idea," President Moon Jae-in said during a New Year press conference last week.

The ruling DPK taskforce aims to create the funds through voluntary contributions from companies and in part through government funding.

The move is sparking backlash from large business owners, with major companies claiming the measures are only implemented in socialist or communist countries. Companies have also been criticizing the proposal over the lack of guidelines determining at which level a company is deemed profitable.

The ruling party has stressed that the profit-sharing scheme would not be compulsory and that each company's voluntary participation would be encouraged through various incentives.

Industry watchers believe the incentives will most likely come in the form of tax breaks of between 10 percent and 20 percent of the total contributions.

However, many believe the government will continue to pressure firms to take part in the initiatives.

"The government says it is voluntary but will continue to pressure firms to take part in the profit-sharing scheme," an industry official said. "The Moon Jae-in administration has restrained companies with dozens of new regulations that severely impact business operations. This administration has pressured companies financially much more than other previous governments."

Dozens of corporations including Samsung Electronics, LG Electronics, Kakao and Woowa Brothers are expected to be subject to the scheme as they have been able secure large profits amid the prolonged pandemic.

IT companies say the proposal will only apply to local companies and harm their earliest stages of development. While domestic companies will be forced to make payouts "voluntarily" the government will not be able to make the same request of foreign firms such as Google and Amazon that have made huge profits in the country.

"If a company enhances profitability the corporate tax rate goes up so they say the profit sharing scheme is voluntary as it could be seen as a double tariff," an industry official said. "If it is voluntary the government needs to set up a well-organized system for the firms to take part, not request for CEOs to engage in industrial discussions with the government, which can only be seen as pressuring the companies,'"

This is not the first time the idea of profit sharing has stirred controversy in Korea.

In 2011, then Korea Commission for Corporate Partnership Chairman Chung Un-chan tried to implement the system under the Lee Myung-bak administration, but he withdrew the plan after facing strong backlash from business leaders.

Then-Samsung Chairman Lee Kun-hee came under the spotlight for his comments about the issue.

"I'm confused about whether it is a term used in socialist states or capitalist countries," he said at the time. "I grew up in an entrepreneur's family and have studied economics. However, I've never heard of the concept."

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