2021 Household Appliances 750%, 2022 Automotive Electronics 550%
"Achieving Goals Matters More Than How Much Was Earned"
Base Salary Increase Rate to Be Outlined After Labor-Management Negotiations... 6% This Year
As LG Electronics is likely to achieve its highest-ever performance this year, there is growing interest in how much the performance bonus payout rate and base salary increase rate will be next year. The VS (Vehicle Solutions) Business Division, which delivered outstanding results this year, is expected to potentially break its own record for the highest performance bonus (550% of base salary).
The criteria for determining LG Electronics' performance bonus payout rate is whether the company has met the sales and operating profit targets set for the year. No matter how good the performance is, if the targets are not met, the increase may not be significant. The overall company target achievement is reviewed first, followed by the achievement of targets for each of the four divisions to determine the payout rate. If both the company and the division meet their targets, the payout rate increases significantly.
Employees entering the VS headquarters within LG Science Park in Gangseo-gu, Seoul on July 7. [Photo by Yonhap News]
LG Electronics' record for highest operating profit was set in 2021 at KRW 4.0579 trillion. The sales record was KRW 83.4673 trillion last year. The cumulative operating profit for the first three quarters of this year is KRW 3.236 trillion, and sales are KRW 61.1237 trillion. To break the operating profit record, KRW 821.9 billion must be earned in the fourth quarter. If sales exceed KRW 22.3436 trillion in Q4, the sales record can also be broken. Securities firms estimate operating profit at KRW 862.4 billion and sales at KRW 23.0585 trillion for Q4.
From a company-wide perspective, it is highly likely that this year will set new all-time records for operating profit and sales. This means that divisions with strong performance can also expect record-high performance bonuses.
The highest performance bonus payout rate by division at LG Electronics was 750% of base salary, set by the H&A (Home Appliance & Air Solution) Division in 2021. The VS Division broke its own record last year by receiving 550%.
By comparing the performance of 2021 and 2022, when the H&A and VS divisions set their records, with this year's results, it is possible to estimate the 2023 performance bonus payout rate. The H&A Division's operating profit for the first three quarters this year is KRW 2.1234 trillion. In 2021, it was KRW 2.0789 trillion, and last year it was KRW 1.106 trillion.
The H&A Division's operating profit roughly doubled this year. Since last year's operating profit was about half of 2021's level, it is possible that the management set a lower target for this year. The cumulative performance for the first three quarters this year is comparable to 2021, so the performance bonus payout rate is expected to increase significantly. Whether it can surpass the previous record of 750% is a key point of interest.
The VS Division recorded an operating profit of KRW 142.1 billion through the third quarter this year. This is an improvement from a KRW 641.5 billion loss in 2021 and KRW 139.4 billion last year. The VS Division's performance this year is better than last year, when it recorded the highest-ever performance bonus payout rate (550%). Employees are expecting bonuses exceeding last year's level. However, if last year's strong performance led to a higher target being set for this year, the increase might not be as large as expected.
With the company-wide performance likely to break all-time records this year, attention is also focused on the base salary increase rate. The base salary increase rate is expected to be announced around March, when labor-management wage and collective bargaining agreements (wage negotiations) conclude. This year's increase rate is 6%. The highest increase rate in the past 10 years was 9% in 2021.
Since this year's increase rate (6%) was not low, the company is expected to face a difficult decision regarding the increase rate. The labor union is likely to demand a rate higher than the commonly used formula in wage negotiations: 'economic growth rate + inflation rate - employment growth rate,' which currently stands at 4.99%. The economic growth forecast for this year (Bank of Korea) is 1.4%, the inflation forecast is 3.6% (Bank of Korea), and the employment growth forecast is 0.01%. The employment growth rate estimate can be calculated by dividing the projected increase in employed persons (320,000, Ministry of Economy and Finance) by the total employed population (28,764,000, Statistics Korea).
An industry insider said, "It is not easy to predict the performance bonus payout rate and base salary increase rate at this point." He explained, "Employees will want record-high bonuses and salary increases given the record-breaking performance, but the company will insist on calculating the bonus payout rate 'according to principles,' reflecting only the excess achievement of each division's targets this year, and will argue that the base salary increase rate must consider the difficult situation expected next year."
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