Management performance pay is equivalent to average wages
Jung Myung-ki, Attorney at the Central Court of Justice of the Federation of Korean Trade Unions
Wage Relevance of Management Performance Bonuses for Private Enterprises
Seoul Central District Court, 2021. 6. 17. Sentencing 2019 Gahap 542535 Decision-
“Business performance pay for which the employer is obligated to pay due to labor practices, etc. is paid in return for work. Since it has the nature of a paid wage, it corresponds to the wage that is the basis for calculating the average wage.”
* Facts
Samsung Electronics has provided its employees with a target incentive (TAI, Target Achievement) every half year since 1994. and an Overall Performance Incentive (OPI) every year since 2000
Target incentives evaluate each business division and its performance, and based on the results, Target Achievement Incentives is paid to the company's subordinated workers in the name of bonus. Based upon the proportionate achivement ratio of the financial performance and the degree to which the strategic tasks tht CEO has assigned(the so-called CEO mission), the company rates each division by the four ratings. (A, B, C and D). Every semi-quarterly, according to the evaluation guidelines, employees under a dividion of the company or under a business domain of each division receive an amount of bonus (Target Achievement Incentives), up to 120% of monthy salary.
The upper limit of the performance incentives for workers subject to annual salary system is up to 50%. That of the performance incentive for workers not subject to annual salary system is 700% of the basic bonus calculation. (the basic bonus calculation might be based upon a fixed amount of monthly payout. the fixed amount of monthly payout is a base for calculating hourly wage, a base for an ordinary wage calcuatation for overtime payment)
Figure 1 Target Achivement Incentive Payout Ratio (Horizon: Business | Vertical: Division)
Although each incentive in this case was included in the average wage under the Labor Standards Act, Samsung Electronics has paid a severance pay where performance incentives is excluded.
Accordingly, the plaintiffs who are employees of Samsung Electonics has insisted that each incentive in this case should be included into the average wage.
"The total wage, the basis for calculating the average wage, includes monetary rewards (any money or valuables) paid on a regular basis and that the employer, a user for the concerned worker's labor, is obligated to pay for, can be included into an average wage calculation. Despite of its name, the amount can be integrated into an average wage calculation."
The legal evidence that an employer is obligated to pay for money or valuables are based upon cellective bargaining agreement, employment rules, internal wage regulations, labor contract, or the employer's policy or labor practice.
* Implications of the target judgment
The judgment in this case emphasizes that the target incentive upper limit is 200% of the basic bonus calculation amount, that is, 240% of the monthly base salary in the first half and second half of the year, and that the upper limit of the performance incentive is 50% of the contracted annual salary or 700% of the basic bonus calculation amount, that is, 840% of the monthly base salary. This point is highlighted because the proportion of performance incentives take up a larget portion of the total rewards. The disportionate ratio of a fixed pay and a variable pay is against the essence of the labor contract in that the management performance bonus, which accounts for a significant proportion of the money that workers receive, as not a reward for work, although workers provide work for the purpose of earning money.