Supreme Court: “Samsung Electronics’ Target Incentive Constitutes Wages,” Performance Incentive Does Not; Judgment Ordering Payment of Severance Pay Difference
The Target Incentive is paid upon the achievement of targets allocated to individual employees and is therefore recognized as consideration for work.
The Performance Incentive is paid in linkage with the company’s overall sales performance and is therefore not considered consideration for work.




The Defendant paid employees “Target Incentives” twice a year (in the first and second halves of the year) and a “Performance Incentive” once a year in accordance with the payment standards prescribed in the Rules of Employment. However, when the Plaintiffs, who were employees of the Defendant, retired, the Defendant paid their severance pay based on the average wage calculated by excluding the above incentives. The Plaintiffs asserted that each of the above incentives constituted wages forming the basis for calculating the average wage, and filed a claim seeking the difference between the severance pay recalculated by including the above incentives in the average wage and the severance pay already paid.

The Second Division of the Supreme Court of Korea (Presiding Justice: Justice Oh Kyung-mi) held that, with respect to the wage nature of the Performance Incentive among the above incentives, the occurrence and amount of the business division–level Economic Value Added (EVA), which constitutes the payment standard, are not closely related to the provision of labor, and other factors over which employees have difficulty exercising control exert a greater influence. Therefore, even if the Defendant bears an obligation to pay under the Rules of Employment, the Performance Incentive cannot be regarded as being directly or closely related to the provision of labor, and thus does not constitute wages as consideration for work.

However, with respect to the wage nature of the Target Incentive, the Court held that the payment amount is a fixed sum that is to some extent predetermined, and that, considering the function, purpose, content, and method of evaluation of the assessment items serving as the payment standards, the occurrence of the Defendant’s obligation to pay under the Rules of Employment can be regarded as being directly related to, or closely related to, the provision of labor. Accordingly, the Target Incentive constitutes wages as consideration for work.

The portion of the lower court’s judgment denying the wage nature of the Performance Incentive was found to be justified. However, the portion denying the wage nature of the Target Incentive was found to contain an error of law in misunderstanding the legal principles regarding the wage nature and average-wage nature of management performance bonuses. As it is necessary for the lower court, upon remand, to calculate the difference in severance pay in accordance with the purport of the reversal, the Supreme Court reversed and remanded in full the lower court judgment that had dismissed all of the Plaintiffs’ claims (Supreme Court Decision rendered on January 29, 2026, Case No. 2021Da248299).