Samsung agreed to allocate 10.5% of its semiconductor operating profit to special bonuses for chip workers.

SEOUL, May 27 (Reuters) - The deal Samsung Electronics struck with ⁠its union averts a massive strike and gives its memory chip workers eye-popping bonuses.It also opens a Pandora's box for companies in South Korea - a country known for militant wage-bargaining. Unionised Samsung workers voted in favour ⁠of the government-mediated pact on Wednesday, marking the first big win for a Samsung union. More significantly, it is only the second time that a major South Korean company has agreed in writing ‌to reward workers with a fixed percentage of operating profit. With profits skyrocketing due to the AI boom and under pressure to narrow its bonus gap with rival chipmaker SK Hynix, Samsung agreed to allocate 10.5% of its semiconductor operating profit to special bonuses for chip workers. Some memory chip workers are set to receive total bonuses of $416,000. A cap limiting special bonuses linked to a unit's performance to 50% of a worker's salary was also abolished. Moreover, the deal covers 10 years of earnings. A NEW FIRE AS ASSUMPTIONS SHATTERED Those decisions by Samsung - a bellwether for South Korea Inc - are likely to harden the stances of other domestic unions also demanding employees be rewarded from operating profit and could embolden more to follow suit. "It could start ⁠a new fire at other big companies in Korea," said Kim Keechang, a professor of ⁠law at Korea University. "It might be only the beginning." He noted that the deal goes against long-standing global norms about corporate earnings. Bonuses are normally calculated after taxes are paid and Samsung's chip workers have de facto jumped the ⁠queue ‌in claiming their share of the company's riches. Even the country's union-friendly President Lee Jae Myung expressed concern ahead of the deal being struck. "To institutionally share a certain proportion of operating profit before taking out taxes, which can be called the public's common share — that is something even investors cannot do," Lee told a cabinet meeting last week. "Even investors receive dividends from net income after taxes are paid, don't they?" Business groups are alarmed. "This agreement reflects Samsung Electronics' special circumstances ⁠and labour groups should not generalise it and spread excessive bonus demands across industry," the Korea Enterprises Federation said in a statement. OTHER UNIONS WANT SIMILAR DEALS Samsung may have had no choice but to cave, ‌with its memory chip workers furious about the bonus gap with SK Hynix and, according to its union, leaving for its rival in droves. Without the deal, which was less generous than SK Hynix's, 48,000 ⁠workers would have gone on strike for 18 days. According to media reports, SK Hynix allocated 10% of operating profit to bonuses last year, changing its cap on bonuses. Under its new pay structure, chip workers are said to be getting close to 3,000% of their base salary in bonus for the past financial year. SK Hynix did not respond to a request for comment on its pay structure. The bonus dilemma, one could argue, should be limited to Samsung and SK Hynix - the primary South Korean beneficiaries of the colossal investments in AI. But other unions are making similar demands. Workers at internet ⁠giant Kakao and four of its affiliates have threatened to strike if demands including apportioning 13%-15% of operating profit to bonuses are not met. A labour commission is mediating talks. Unions for telecoms firm LG Uplus and HD Hyundai Heavy Industries, a major shipbuilder,have said they want at least 30% of operating profit to be allocated to performance compensation among other demands.Wage negotiations at LG Uplus are underway, while those for HD Hyundai Heavy are likely to start next month. At Samsung Biologics, workers walked off the job for five days this month with demands that included 20% of operating profit to be given over to performance ⁠bonuses. Management has not budged and the dispute is ongoing with employees refusing to do overtime or work on holidays. NEW LAW PROMISES MORE UNION ACTIVITY Around 13% of South Korea's workforce was unionised in 2024, according to government statistics - a figure slightly under the OECD average.Its unions, however, strike with far more frequency than, say, workers in neighbouring Japan - a factor cited by foreign companies as making South Korea unattractive to invest in. South Korean union militancy has its roots in long-held resentment by ordinary people towards powerful chaebol or conglomerates that dominate the economy and which are perceived by workers as being too authoritarian to listen to anything but aggressive action. Traditional union activity has ticked up this year with 113 filings in February showing dispute mediation has been sought compared with 105 for the same month a year ago. On top of that, the new Yellow Envelope Act - named for the envelopes that members of ⁠the public used to send funds to a union embroiled in a high-profile dispute - went into effect in March and is expected to stoke contentious labour relations. The law expands the scope of protections for subcontractors while making it more difficult for companies to retaliate financially against striking workers. Indeed, the day it took effect, some 400 subcontractor union groups with a combined 81,600members demanded wage negotiations with management, according ‌to the Korea Labor Institute. The rights of subcontractors to a greater share of earnings may also become a new front in pay negotiations for Samsung, which is also having to contend with unhappy employees in other divisions and upset shareholders. "Samsung Electronics' growth and production are the result of many partner companies and workers working together,"the Federation of Korean Trade Unions said after the deal. It called for measures to ensure that "the fruits of performance can be fairly distributed to partner-company workers." (Reporting by Joyce Lee and Brenda Goh; Editing by Edwina Gibbs)

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