Why SK Hynix Was Rejected While Samsung Electronics Was Approved: The Reason for Diverging Supreme Court Rulings on Performance Bonuses as "Wages" [Invest&Law]

"Performance Bonuses Linked to Management Profits Not Recognized as Wages"

Samsung Electronics' PI Acknowledged as Tied to Work Performance

SK Hynix and Hanwha Ocean Cases Decided in Favor of Companies

Companies with Similar Wage Stru

There is growing interest in the corporate sector as the Supreme Court has delivered differing rulings on whether the same type of performance-based bonuses can be recognized as 'wages,' which are the basis for calculating severance pay. Unlike performance bonuses at major companies such as SK Hynix, Hanwha Ocean, and Hyundai Marine & Fire Insurance, which were not recognized as wages, only Samsung Electronics' 'Performance Incentive (PI)' was exceptionally accepted. The analysis suggests that bonuses tied to overall management indicators are excluded, and only those with clear pre-established formulas and a strong correlation with employee performance are recognized as wages.

According to the legal community on April 22, the Supreme Court recently sided with the management in severance pay lawsuits involving SK Hynix, Hanwha Ocean, Hyundai Marine & Fire Insurance, and LX Glass. The common feature of these cases was that the criteria for granting performance-based bonuses were linked to the company's overall management performance, such as net profit, operating profit, and economic value added (EVA).

The court found that these indicators are difficult to attribute solely to the employees' labor, as they are heavily influenced by external factors such as exchange rates, economic fluctuations, market conditions, and management decisions. Ultimately, the court determined that these bonuses have the characteristics of post-distribution of management performance, rather than being direct compensation for work provided by employees.

Whether the obligation to pay the bonus was specifically established was another key factor in the court's decision. When there was ▲no basis for payment in the employment rules or the payment criteria had changed several times, ▲the amount and eligibility for payment were determined each year through labor-management negotiations, or ▲even if there was a reference table in the collective agreement, the premise was linked to management indicators such as net profit, none of these cases were recognized as wages. The court looked beyond the mere name of the bonus, instead examining what criteria and under what structure the payments were actually made.

In contrast, the case with Samsung Electronics was different. The Supreme Court ruled that the PI qualifies as a wage that forms the basis for calculating average wages. The grounds and calculation formulas for the payment were relatively clearly stipulated in the employment rules, and the size of the payment was determined within a certain range, reflecting the financial performance of the business unit and the degree of achievement of strategic tasks. This means that the bonus was not just a profit-sharing scheme, but was directly and closely related to the work performed by employees. However, Samsung Electronics' other performance incentive (OPI) was not recognized as a wage, as it was deemed to be influenced by external factors such as market conditions and management decisions in addition to employee performance.

Sangmin Kim, a lawyer at Bae, Kim & Lee LLC, explained, "In cases where the wage nature was denied, the bonuses were linked to metrics like operating profit or net profit, which are heavily influenced by external factors such as exchange rates, economic trends, and government policies, rather than factors related to wages. On the other hand, if the structure is designed so that employees' efforts and performance are reflected and the criteria are established in advance, there is room for a different assessment."

Jiyoon Yang, a lawyer at Jipyong LLC, stated, "In the case of Samsung Electronics' PI, the calculation formula in the employment rules was relatively specific, and evaluation factors such as market share, inventory rate, and sales growth rate, which are linked to employees' efforts, were reflected. This structure was different from other companies, where bonuses are paid only if overall management performance is achieved."

The industrial sector is focusing on the fact that the Supreme Court has established a consistent legal principle regarding performance-based bonuses in private companies. However, with lawsuits continuing from retirees of affiliates with wage systems similar to that of Samsung Electronics, related legal disputes are expected to continue. As a result, companies designing performance bonus systems are being advised to closely examine how closely evaluation factors are linked to individual employee performance, and how specifically payment criteria and formulas are reflected in employment rules or collective agreements.

This content was produced with the assistance of AI translation services.