Kim & Chang successfully represented a mutual savings bank (the “Defendant”) in a lawsuit on whether the business performance bonuses paid to employees constituted “average wage” under the Labor Standards Act. Our firm secured a court judgment dismissing all of the Plaintiffs’ claims, and this judgment became final and binding without an appeal (Seoul Northern District Court Decision 2021Gahap25056, July 23, 2026).

The Defendant operated a business performance bonus system from around 2009 to 2020. The bonus structure operated as follows: (i) the total company-wide bonus fund was determined by multiplying the company’s target incentive amount by the Business Performance Indicator (“BPI”), which is an index calculated from a weighted sum of six financial metrics, including operating profit; (ii) the finalized fund was allocated based on each employee’s annual salary, rank and position to establish individual target incentive amounts; and (iii) the final payout was determined by multiplying the individual target incentive amount by a payout rate calculated from the employee’s competency evaluation grade. Six employees (the “Plaintiffs”) filed a claim for underpaid retirement pension contributions, arguing that the performance bonuses constituted wages paid regularly and continuously, and should have been included in the calculation of retirement pension contributions.

However, the court dismissed all of the Plaintiffs’ claims based on the following grounds.
 

• Specific payment criteria, such as eligible recipients or payment conditions, were not specified in the collective bargaining agreement, compensation regulations or employment contracts. Instead, the Defendant’s discretion was explicitly stated, making it difficult to recognize the Defendant’s obligation to pay.

• The target incentive amount was determined annually at the Defendant’s discretion by considering economic growth rates, inflation and financial performance. Furthermore, because the payouts were calculated by multiplying this amount by the BPI index (where operating profit and operating profit per employee accounted for 65% of the weight), they depended heavily on market conditions and management decisions rather than factors directly or closely tied to employee labor.

• Even though individual payouts were differentiated based on competency evaluation grades, the underlying fund itself depended on factors outside the employees’ control. Therefore, the essential nature of the performance bonus could not be deemed compensation for labor.

• The mere fact that the bonus had been paid continuously over a long period from 2009 to 2020 was insufficient to categorize it as mandatory wages.
   

We successfully argued that the Defendant’s performance bonuses did not constitute wages by applying the legal principles established in early 2026 Supreme Court rulings regarding business performance bonuses (involving several semiconductor manufacturers). This case presented unfavorable factors for the Defendant, such as the inclusion/consideration of individual competency evaluations during the bonus distribution stage. Nonetheless, we asserted and proved the following key points:
 

• Individual competency evaluations merely affected the final payout rate during the allocation stage, and the total funding was determined first (separate from individual employee performance) based on the Defendant’s financial metrics (such as operating profit) and management’s discretionary judgment.

• None of the Defendant’s regulations or policies included any clear payment criteria. Instead, the Defendant’s absolute discretion over the payouts was expressly stated in the internal regulations.
   

Based on the above points, we established that the individual evaluations served merely as a mechanism for the distribution of a fixed pool of money (which was calculated strictly from corporate financial performance), thereby securing a favorable decision denying the wage nature of the performance bonus. We expect this judgment to serve as a vital case precedent for companies operating under similar performance bonus structures.

[Korean Version]