RPT-BREAKINGVIEWS-Pay dispute backs Samsung into a tight corner

By Robyn Mak

HONG KONG, May 13 (Reuters Breakingviews) - Samsung Electronics' 005930.KS will need to be more generous if it is to avoid falling behind again in the artificial intelligence race. The $1.2 trillion company, South Korea's largest employer, is under pressure to match a pledge by its chip-making rival, SK Hynix 000660.KS, to pay richer, longer-term bonuses. At stake is its ability to retain talent.

The handset-to-chip manufacturer had its first taste of worker revolt in 2024, when a union representing roughly 28,000 workers - roughly a fifth of Samsung's workforce at the time - went on strike for nearly a month. The financial and business impact was manageable and the company didn't appear to concede to any major demands of higher wages.

The stakes this time will be much higher. Union members, now numbering more than 90,000, or 70% of the conglomerate's workforce, want Samsung to allocate 15% of annual operating profit to bonuses, among other demands. Based on average analyst forecasts compiled by Visible Alpha, the company would be on the hook to pay an average of $46 billion annually in performance incentives over the next five years.

Workers have threatened a 21-day walkout at the end of May but the bigger risk for Samsung may be defections. Last year, cross-town rival SK Hynix agreed to scrap bonus caps and allocate 10% of annual operating profit to the performance pool for the next 10 years - a move that has emboldened unions across Korea Inc.

Samsung may not want to promise bigger payouts to staff because some of its divisions, such as its home appliances units, are underperforming. The diverging prospects within the listed company has even prompted suggestions of a breakup of the AI hardware giant. Such a drastic move is unlikely to help much.

For Lee, keeping his chip division's workers on board ought to be his top priority. His firm has fallen behind the nimbler SK Hynix in the race to develop next-generation data storage chips vital to AI. But Samsung is starting to catch up: the company recently confirmed it started mass production for the latest high-bandwidth memory for Nvidia's NVDA.O flagship processor. The semiconductor division is now on track to account for over 90% of the group's total operating profit until 2031. For now, Samsung's fortunes depend on keeping its AI and chip talent happy.

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CONTEXT NEWS

Samsung Electronics said on May 13 that it regretted the collapse of pay deal talks with its South Korean union and said it would continue "sincere dialogue". The union leader said on the same day that it failed to reach a pay deal with the company, warning that more than 50,000 workers could go ahead with a full strike for 18 days from May 21.

Samsung's workers are demanding bonus caps to be eliminated, 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.

Rival SK Hynix in September accepted its union's demand to allocate 10% of the company's annual operating profit to a bonus pool for 10 years. It also abolished a cap that limited bonuses to 1,000% of an employee's base salary.