Samsung Electronics has reached an agreement with its union that prevents a large strike and offers significant bonuses to its memory chip workers. This deal could set a precedent for other companies in South Korea, a country known for strong union demands. Unionized Samsung workers voted to accept a plan negotiated with the government, marking a key victory for a Samsung union. Importantly, this is only the second time a major South Korean company has agreed in writing to give workers a set percentage of its operating profit.
Samsung, driven by high profits from the AI boom and pressure to match rival SK Hynix’s bonuses, will give 10.5% of its semiconductor operating profit as special bonuses to chip workers. Some of these workers could receive as much as $416,000 in total bonuses. A rule that capped special bonuses at 50% of a worker’s salary based on a unit’s performance has also been removed. This agreement covers earnings from the past 10 years.
These decisions by Samsung, a significant indicator for South Korean businesses, are expected to make other unions more assertive in their demands for workers to share in operating profits, potentially encouraging more companies to face similar requests. Legal experts believe this could be the start of a trend. The agreement differs from typical global practices where bonuses are usually calculated after taxes. This means Samsung chip workers are getting a direct share of profits before other claims. Even the President of South Korea had expressed concerns that sharing operating profit before taxes is something even investors do not do, as they receive dividends after taxes. Business groups are worried, stating that this agreement is specific to Samsung’s situation and should not lead to widespread, excessive bonus demands across industries.
Samsung may have felt compelled to agree to the deal due to worker dissatisfaction and reports of employees leaving for SK Hynix, which offered more generous bonuses. Without this agreement, 48,000 workers were prepared to strike for 18 days. Reports suggest SK Hynix allocated 10% of its operating profit to bonuses last year and also changed its bonus limits, with some chip workers reportedly receiving bonuses close to 30 times their base salary. While the bonus issue might seem specific to Samsung and SK Hynix, who have benefited greatly from AI investments, other unions are also making similar demands.
For example, at the internet company Kakao, workers are considering a plan to receive 10% of operating profit as bonuses, and workers at Kakao and its affiliates have threatened to strike. Unions at the telecom company LG Uplus and the shipbuilder HD Hyundai Heavy Industries are seeking at least 30% of operating profit for performance compensation, among other demands. Wage talks are ongoing at LG Uplus, and are expected to begin at HD Hyundai Heavy next month. At Samsung Biologics, workers went on strike for five days seeking 20% of operating profit as performance bonuses, but management has not agreed, and the dispute continues with employees refusing overtime or holiday work.
Approximately 13% of South Korea’s workforce is unionized, which is slightly below the average for developed countries. However, South Korean unions strike more often than those in countries like Japan, which foreign companies have cited as a reason for not investing in South Korea. The strong stance of South Korean unions stems from a historical resentment towards powerful business conglomerates, or chaebols, which are seen by workers as being too rigid and unresponsive to their concerns without forceful action. Union activity has increased this year, with more union disputes being reported.
Furthermore, a new law called the Yellow Envelope Act, which came into effect in March, is expected to increase labor disputes. This law provides more protection for subcontractor workers and makes it harder for companies to take financial action against striking workers. On the day the law took effect, many subcontractor union groups demanded wage negotiations. The rights of subcontractors to a larger share of earnings could become a new point of contention for Samsung, in addition to demands from its employees and concerns from shareholders.
The Federation of Korean Trade Unions stated that Samsung’s success is due to the combined efforts of many companies and workers and called for fair distribution of performance gains to partner company employees. In response to this sentiment, Samsung announced it would create a $3 billion fund to support its suppliers, underprivileged groups, and future talent in South Korea.
With information from Reuters
