Supreme Court Rules Samsung Electronics Must Include Target Incentives in Severance Pay Calculation

by Choi Taewon

Published 29 Jan.2026 10:51(KST)

"A Fixed Amount of Compensation with Predetermined Scale"

The Supreme Court has overturned a lower court ruling that excluded target incentives (performance bonuses) from the calculation of 'average wage,' which serves as the basis for severance pay.

Supreme Court, Seocho-gu, Seoul. Photo by Yonhap News

According to the legal community on January 29, the Civil Division 2 of the Supreme Court (Presiding Justice Oh Kyungmi) overturned the previous ruling, which had determined that target incentives could not be regarded as ordinary wages, and remanded the case to a lower court. The bench stated, "Target incentives are a fixed amount of compensation, the scale of which is determined to some extent in advance," and concluded, "They constitute wages as remuneration for labor."

Fifteen former Samsung Electronics employees filed a lawsuit in June 2019, claiming that the company had excluded performance bonuses, awarded for achieving targets and results, from the average wage used to calculate severance pay, and requested payment of unpaid severance totaling over 200 million won. The average wage is calculated as the daily amount based on the total wages received during the three months prior to retirement. For each year of service, severance pay is equal to 30 days' worth of average wage.

The employees argued that the performance bonuses were the result of their accumulated efforts and, since these bonuses had been paid regularly, they were no different from ordinary wages. On the other hand, the company maintained that performance bonuses were determined by global economic conditions and management’s strategic decisions, and thus could not be considered direct compensation for labor provided.

Previously, both the first and second instance courts had determined that performance bonuses could not be regarded as ordinary wages. They cited the lack of a direct connection between the employees’ work and the company’s performance, as well as the fact that the recipients and conditions for payment were not predetermined.

This outcome is expected to impact numerous other severance pay lawsuits with similar claims. Starting with Samsung Electronics, companies such as SK Hynix, LG Display, Samsung Display, and Hyundai Marine & Fire Insurance are also involved in related lawsuits. Currently, more than ten such cases are pending before the Supreme Court.

If performance bonuses are included in the average wage, severance pay could increase dramatically. Under current law, severance pay is calculated by multiplying the average wage for the three months immediately prior to retirement by the number of years of service.