Economy

Upset with their bonus

Industrial unrest at LG factory points to deeper problems

“Life’s good”: LG workers in Nanjing beg to differ

As a former Salomon Brothers investment banker Michael Lewis knows a thing or two about bonuses. But in his book The Big Short, Lewis reckons he’s found the man who epitomises the bonus culture best. His name is Greg Lippmann. A typical conversation with the bond trader would have him tell you: “Let’s say they paid me six million last year. I’m not saying they did. It was less than that. I’m not saying how much less. But the kind of year I had, no way they paid me less than four million.”

In Lippmann’s bonus-obsessed world view, management “never want you happy. On the other hand, they don’t want you so disgusted you quit. The sweet spot is somewhere between dissatisfied and disgusted,” he philosophises.

It’s hard to imagine Lippmann working in a factory in Nanjing but his views on remuneration look to be shared. Poor bonuses in the eastern Chinese coastal city have led workers to feel pretty disgusted too. In a display of militancy over their annual pay award 8,000 staff at LG Display’s plant in the city walked out just after Christmas, forcing a partial shutdown in production. They say that their bonus had been reduced from the three months of pay they got in 2010 down to a single month.

The newspaper CBN tracked down two workers at the plant to explore their grievances. The mood is said to have boiled over when word got out that LG’s Korean staff were apparently taking home a bonus equivalent to 6.5 times pay.

Video soon made it onto the internet showing aggrieved workers venting their anger – destroying the factory canteen and smashing up the personnel office. The factory’s more vital production machinery was left untouched, however.

LG Display is the world’s second biggest maker of liquid crystal displays (LCDs). But the management in Nanjing has been trying to convey the difficult economic conditions to its workforce. Global LCD prices have been declining. In the third quarter LG made a loss of W492 billion ($429 million).

Still, to try to prevent the industrial action escalating, LG offered Chinese workers two months bonus – but also threatened to shut the factory down if the strikers didn’t return to work in 24 hours.

According to the People’s Daily the dispute was settled by December 28, with workers back at their posts. However, the incident is symptomatic of the potential for another wave of labour unrest across China. WiC first highlighted this trend in WiC63, pointing out that the ‘Made in China’ model of cheap labour was increasingly under pressure. In part this is because demographic trends are at play – the population of 20 to 39 year-olds has shrunk by a fifth in the last 10 years, giving the available labour force more bargaining power for the first time in decades. The results: rises in minimum wages (see WiC101 and 96) and increases in industrial action as staff agitate for higher pay.

Some workers, on the other hand, have been better pleased with their bonuses. Economic Information Daily reports that full-time staff at FAW-Volkswagen, the joint-venture carmaker, have received 27 months bonus on top of basic salary. Informed sources told the newspaper that in 2010 the firm had paid 11 months salary as bonus.

An internal company document noted “such distribution is rare… we should keep it low-profile to avoid triggering unnecessary problems.”

Nice idea, but unavoidably the news leaked and had already become the talk of the internet by late December.

Little wonder, given the generosity of the payout. Then again, still not the kind of largesse likely to satisfy Mr Lippmann…


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