Performance bonuses tied to a fixed percentage of earnings have emerged as a major socioeconomic issue. The practice — carving out a portion of operating profit to pay employees — has drawn fierce pushback from shareholders.
Employees work for a fixed salary and receive their agreed-upon wages even when the company posts a loss. That distinguishes them from shareholders, whose dividends fluctuate with both the size of profits and management decisions. Still, there is room to assess the direct contributions of shareholders and employees differently.
Performance bonuses that far exceed welfare benefits or base salaries are clearly open to debate. They also run counter to the core principle of shareholder capitalism. Unless society works through these questions and reaches some consensus, the issue is likely to generate a host of problems down the road.
Shareholder capitalism has since expanded into "stakeholder capitalism" — broadening the definition of who supplies resources to a company beyond shareholders alone to include executives and employees, creditors, consumers, local communities and government.
What that framework still leaves out, however, are the many partner firms within the supply chain. When excess profits arise, employees receive performance bonuses and the government enjoys a windfall in tax revenue. Local communities and consumers also share in the benefits.
The dozens to thousands of partner companies in a supply chain may, in some respects, be the highest contributors of all. Although they operate under ordinary commercial arrangements, the long-term nature of those relationships sets them apart. That is precisely where the case arises for compensating them beyond the contract price — giving them a share of the parent company's excess profits. Leaving it entirely to trickle-down effects is not a workable answer.
Practical mechanisms exist to make such compensation a reality. When a parent company's profits exceed a target, it could establish a profit-sharing formula and distribute performance bonuses to partner firms accordingly. Alternatively, a fund could be built up and allocated based on each partner's level of contribution — something the parent company's cost accounting can already reveal.
The lens of global competition is shifting — from individual firms to rivalry between industries, then to supply chain competition, and ultimately to competition between entire ecosystems. Korean companies have no choice but to compete globally through ecosystem strategies, and those ecosystems must be healthy. A structure in which partner firms sacrifice so that the parent company can maximize its profits will never produce one.
Partner firms need conditions that allow them to invest more in research and development and in employee welfare. Only then can large companies sharpen their competitiveness with better products. The innovation capacity of parent companies and their partners rises together. Moving toward this kind of "ecosystem capitalism" is no longer optional.
freiheit@heraldcorp.com
