1.

Why the Court Denied Company A and B’s Performance Bonuses as Wages

Unlike the previous ruling where Company X’s target incentives were recognized as wages, the Supreme Court held that the management performance bonuses for both Company A and Company B did not qualify as such. The Court’s reasoning centered on the following three key criteria:
 

(1)

Consideration for Labor

First, the Court looked at whether the payment was directly linked to the employees’ provision of labor. Company A’s bonuses were divided into Profit Sharing (“PS”) and Productivity Incentives (“PI”), with the PS paid based on the generation and magnitude of operating profit or Economic Value Added (“EVA”). For Company B, its performance bonuses were paid based on the generation and magnitude of net income.

The Court noted that the achievement of these financial targets is structurally determined not just by the employees’ work, but by external factors beyond their control—such as market conditions, capital size, expense levels, and executive management decisions. Consequently, the Court ruled it is difficult to view Company A’s PS and Company B’s performance bonuses as consideration paid in exchange for the quantity or quality of labor.
 

(2)

Obligation to Pay

Second, the Court examined whether both companies had a binding legal obligation to pay these bonuses. For Company A, neither the PS nor the PI had specific definitions or payment criteria set forth in the Rules of Employment or wage regulations. The validity of the labor-management agreements regarding these bonuses was also limited strictly to the relevant year. Furthermore, Company A retained the discretion to refuse such agreements depending on management conditions.

Therefore, the Court concluded that Company A did not bear a continuous obligation to pay performance bonuses under its Rules of Employment, collective agreements, or established practices.
 

(3)

Regularity and Continuity

Third, the Court assessed whether the payments were made continuously and regularly, or if they were contingent on variable conditions. For instance, Company B had a structure where no bonus was paid at all if the minimum threshold (e.g., KRW 3 billion in net income) was not met. Similarly, Company A had a history of not paying performance bonuses in specific years due to business deficits or a failure to reach labor-management agreements. Focusing on this contingency, the Court ruled that these bonuses could not be viewed as consideration for labor paid regularly and continuously to employees.
 

2.

The Critical Question – Is Your Bonus Like That of Company X or Company A?

This series of Supreme Court rulings highlight that even if bonuses share the same name (e.g., “PI”), their legal classification can differ entirely depending on the specific facts.

For instance, in the Company X case, the PI was deemed wages because the payment scale was pre-determined, and the fluctuation range was stable. On the other hand, for Company A and Company B, performance bonuses were not determined to be wages because the achievement of payment conditions was highly uncertain.
 

3.

Implications for Your Business

Companies must now face the reality that a “one-size-fits-all” interpretation is not feasible. The Supreme Court has made it clear that whether a bonus qualifies as wages depends entirely on the specific design and operation of the incentive scheme. Therefore, we recommend that companies conduct a precise diagnostic review of their current performance bonus systems.