Photo courtesy of Yonhap News

 

[Alpha Biz= Paul Lee] Former employees of Samsung affiliates have begun filing lawsuits following a Supreme Court ruling that certain performance-based incentives should be included in the calculation of severance pay.

According to legal sources on March 23, 18 former employees of Samsung SDS filed a lawsuit with the Seoul Central District Court seeking payment of management performance bonuses from the company.

The legal action follows a landmark Supreme Court decision in January, which ruled that “target incentives” paid by Samsung Electronics should be included in average wages used to calculate severance pay. The ruling overturned a lower court decision and remanded the case for further proceedings.

In the earlier case, former Samsung Electronics employees argued that incentives tied to target and performance achievements had been excluded from the average wage calculation, resulting in unpaid severance benefits amounting to around 200 million won.

The Supreme Court found that target incentives—paid semiannually based on pre-defined business unit performance metrics—are closely tied to employees’ work performance and function as deferred compensation. As such, they should be treated as wages and included in severance calculations.

The court noted that the criteria for such incentives, including strategic execution and financial performance, are directly linked to the quantity and quality of labor, and that the payment system was structured around specific performance targets.

However, the court drew a distinction regarding discretionary performance bonuses, ruling in separate cases involving SK Hynix and Hanwha Ocean that such bonuses, determined at management’s discretion without fixed criteria, should not be included in average wages.

The ruling is expected to trigger further legal disputes across major conglomerates, as companies reassess how performance-based compensation is treated in severance calculations.

 

 

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