Kia Agrees to Increase Year-End Bonuses

Seeking to avoid a confrontation with its labor union, Kia Motors Corp. says it will pay workers a 150% year-end performance bonus even though the auto maker did not reach its 2006 production targets.

Kia’s sister company, Hyundai Motor Co. Ltd., recently agreed to pay workers a 150% bonus after employees held demonstrations, refused to work overtime for 15 consecutive days and held partial strikes for two days at all Hyundai plants in South Korea.

Kia and Hyundai earlier gave employees 100% year-end bonuses, as both auto makers attained only 98% of their production goals last year. Previously, workers received a 150% payout that was not tied to performance criteria.

A Hyundai source told Ward’s during the Hyundai standoff that Kia’s labor union would also call for demonstrations and strikes if the Hyundai union obtained the increased bonus.

Korean news media report the Kia union was calling a meeting to discuss possible strike action when management asked for a settlement meeting.

“Kia agreed on Jan.19 to provide employees with the unpaid 50% bonus,” the auto maker says in a statement. “Both parties agreed to settle the issue as a way to motivate and encourage employees.”

The auto maker also states last year’s 50% unpaid bonus was caused by fluctuating exchange rates and worsening marketing conditions, taking the onus for the auto maker’s production shortfall off of workers.

Therefore, the Kia bonus payment is not conditioned on making up lost production. Hyundai workers, in contrast, are required to make up the 2006 production shortfall before the additional 50% bonus is paid.

Industry observers believe pressure from Korea’s Fair Trade Commission over other issues was a factor in the auto makers’ decisions to pay the bonuses.

The FTC last week announced it was fining Hyundai 23 billion won ($24.5 million) for setting tough sales quotas for its dealerships and discriminating between contracted dealers and its own direct sales units. A published report says Kia now is being investigated for the same reasons.

“The FTC has been investigating Kia on its discriminatory treatment of sales branches since a complaint was filed last June,” an FTC official is quoted as saying in Korean news media. “We will soon present our report to the commission.” Management at both auto makers also are concerned about the possible incarceration of Hyundai Motor Group Chairman Chung Mong-koo and some of his senior officers.

Prosecutors last week asked a court in Seoul to sentence Chung to six years in prison on charges of embezzlement and breach of trust.

Security analysts in Seoul predict Hyundai will report a 27% drop in fourth-quarter 2006 net profit when figures are released this week. They estimate net profit will be 482.6 billion won ($514.2 million) compared with like-2005’s 656.8 billion won ($698.3 million.)