Hyundai Motor's plan to cut its employee car discount, which reaches as much as 30%, to a flat 20% has collapsed in the face of union opposition.
Hyundai Motor (005380) recently proposed in a package offer during wage negotiations that the discount rate, which has been applied differently according to years of service, be set at the same level for all employees, according to industry sources on the 6th.
The discount now ranges from 10% for employees with less than five years of service to 30% for those with 26 years or more.
Management tried to persuade employees to accept a uniform 20% rate, saying it would compensate long-serving workers who would lose benefits by granting them welfare points.
Behind the attempted overhaul is a revision to tax law. In February last year, the government amended the enforcement decree of the Income Tax Act, spelling out for the first time a threshold for tax-exempt employee discounts.
The key change treats any portion of an employee discount exceeding 20% of the market price as earned income subject to income tax.
For example, if an employee buys a 50 million won ($36,000) car at a 30% discount, or 15 million won, the first 10 million won, equal to 20%, is tax-exempt, while the remaining 5 million won is taxable.
Until then there had been no clear standard for taxation, so no tax was levied, but now a threshold exists.
The company's proposal in fact came after the union first asked management to cover the taxes so that workers could keep their existing benefits. The union asked the company to pay the taxes arising from discounts above 20% on its behalf.
Management notified the union that it could not accept that, and countered with a plan to revise the discount structure itself.
Under that plan, the discount for long-serving employees would be lowered from as much as 30% to 20%, while the rate for employees with 15 years of service or less would be raised to 20%, unifying the rate for all employees at 20%.
Long-serving employees facing a lower rate would receive welfare points equivalent to the taxes assessed for each service bracket.
Management's reasoning was that keeping the discount within the tax-exempt ceiling of 20% would eliminate the tax issue altogether, creating a legal way to reduce the tax burden.
Because younger union members with 15 years of service or less would receive larger car discounts than before, the plan also had the effect of raising overall benefit levels.
But the union pushed back strongly, saying the plan "weakens the incentive for long service," and the discussion was dropped.
The union argued that the existing principle of differentiated rewards based on years of service must not be shaken. It also said welfare points are less useful than a discount felt immediately at the time of a car purchase.
Younger union members, too, are said to have balked at the prospect of smaller discounts once they reach long service, rather than welcoming an immediate increase in the discount rate.
The tax revision triggered discussion of an overhaul of the long-dormant employee car discount program, but with the talks broken off, the issue is not expected to return to the table for some time.
