The Supreme Court of Korea held on February 26, 2026 (Case No. 2022Da215715) that a management performance bonus paid under internally approved annual standards did not constitute “wages.” The Court therefore reversed and remanded the High Court decision, which had treated the bonus as wages for purposes of calculating average wages.
The company’s rules of employment contained no provisions on whether a management performance bonus would be paid or on the payment criteria. Instead, the company established bonus standards each year through internal approval procedures and the CEO’s sign-off. Under those standards, the bonus would only be paid if net profit for the relevant period exceeded a specified threshold, and different payout rates would apply by bracket depending on the amount by which net profit exceeded the threshold.
The Supreme Court concluded that the bonus was not wages, for the following reasons:
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1. |
No continuous/regular payment obligation based on established practice |
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2. |
Not a direct or close quid pro quo for labor |
This decision is significant in that it reaffirms—consistent with recently issued Supreme Court rulings on private-sector management performance bonuses—that bonuses paid based on whether net profit is generated and its scale may be denied “wage” status. It further clarifies that where bonus criteria are expressly limited to a single year and are unilaterally set and modified by the company, their effect is limited to that year, and the company may decide not to pay the bonus at any time depending on business conditions.
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