Samsung Electronics Fails To Reach Deal With Union; PM Says Strike Must Be Averted

• Union threatens 18-day strike over bonus pay gap with SK Hynix
• Samsung says it remains open to dialogue with union
• Samsung shares tumble but pare losses after PM's statement

By Hyunjoo Jin and Heekyong Yang

SEOUL, May 13 (Reuters) - Samsung Electronics 005930.KS and its union failed to reach a pay deal on Wednesday, heightening the risk of a massive strike that threatens not only chip production, the company's standing, but also the health of the South Korean economy.

The impasse followed marathon government-mediated talks on Monday and Tuesday.

Underscoring the angst caused by the potential strike, South Korea called an emergency meeting for related ministers. There, Prime Minister Kim Min-seok instructed the government to closely manage the situation "considering the gravity of the impact on the national economy", a statement from his office said.

He also urged "proactive support to ensure dialogue between the union and management can continue so this doesn't lead to a strike under any circumstances," it added.

HUGE GAP IN BONUS PAY WITH SK HYNIX

Shares in Samsung, the world's largest memory chip maker as well as a key provider of AI chips, initially tumbled as much as 6% but were later trading 0.7% lower after the news of the emergency ministerial meeting.

Furious over what it calls a massive gap in bonus pay with rival SK Hynix 000660.KS, the union has said that should its demands not be met, workers will strike for 18 days from May 21.

More than 50,000 workers could walk off the job, the union has flagged, a move that would likely delay shipments to customers, push up chip prices further and benefit rivals.

Union representative Choi Seung-ho said that Samsung had not addressed any of the union's demands, including the scrapping of a cap on bonus pay currently set at 50% of annual base salary.

Choi said the union has no plans to resume talks with management before the strike date, but would be willing to consider "a proper proposal" if the company presents one.

Samsung said in a statement it regretted the collapse of talks and would continue efforts to prevent a worst-case scenario through what it described as "sincere dialogue" with the union.

The National Labor Relations Commission, which acted as mediator in the talks, said it presented "various alternatives" but it decided to conclude the process "due to the wide gap between the two sides' positions and the union's request to suspend the talks."

SURGE IN UNION MEMBERSHIP

SK Hynix, which beat Samsung in delivering high-bandwidth memory for artificial intelligence chip units to Nvidia NVDA.O, in September accepted its union's demand for compensation reform which included scrapping the cap on bonus pay.

That has fuelled Samsung employees' frustration and sparked a surge in union membership. Union members now number more than 90,000, representing over 70% of Samsung's South Korean workforce.

Employees' frustration has been exacerbated by Samsung's record profits as the AI boom drives up demand for chips. Last week, Samsung became only the second Asian company after TSMC 2330.TW to have a market capitalisation of more than $1 ⁠trillion.

Samsung's union has also demanded a 7% hike in base salaries, that 15% of annual operating profit be allocated as bonus pay and more clarity on how bonus pay is calculated.