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South Korea’s LG Electronics will partially revise its performance-based compensation system for each business division that Kwon Young-soo, vice chairman of LG Group’s holding company LG Corp, introduced.

LG Electronics said on Friday that it has decided to include performance of the company itself in the criteria for calculating the compensation rate from next year along with the achievement of each business division's performance (sales and operating profit) targets. So far, the performance of each business division has been an important factor in calculating the performance-based compensation. The compensation has been calculated by evaluating how much each business division achieved its target in each industry.

However, the company has newly included its overall sales and operating profits in the criteria as the company’s labor union pointed out that there is a large disparity in compensation among divisions.

LG Electronics said the planned changes will help employees to feel a sense of unity and belonging to the company.

LG Electronics introduced a performance-based pay system in 2019, led by Kwon. He established the performance-oriented competition system, which requires each division to come up with exact performance target.

The system, however, has brought a strong backlash from employees. LG Electronics has six business divisions, including Home appliance & Air solution (H&A), Home Entertainment, Vehicle component Solutions, Business Solutions, and Innotek. Whereas the H&A division accounts for 38.3% of the company’s total sales (58 trillion won), the Vehicle component Solutions and Business Solutions division account for only 10% of the total.

At the beginning of this year, compensation rates for the kitchen appliance business and the living appliance business were set at 750%, with the air solution business set at 600%. The businesses are part of the H&A division, which posted record-high earnings last year. If a manager-level employee in the kitchen appliance business receives an annual salary of 80 million won, the person will receive up to 30 million won in performance pay alone.

In contrast, the compensation rate for the TV and AV businesses under the Home Entertainment division, were set at 200%, with the home beauty business set at around 100%. Some employees belong to the Vehicle component Solutions and Business Solutions divisions received only 1 million won to 3 million won in incentives.

Employees of LG Electronics, including the union, argued that the company has to take into account the situation that the Vehicle component Solutions and Business Solutions divisions are facing, where it is difficult to achieve tangible results from the new business in the short-term. (Reporting by Hyun-ji Sohn)