Korean oil refiners slash employee bonuses amid plummeting profits

SK Innovation, S-Oil, HD Hyundai Oil bank, and GS Caltex plan to drastically reduce performance-based bonuses for employees this year due to a nearly 50% decline in earnings in 2023.

Employees at major Korean oil refiners, including SK Innovation, S-Oil, HD Hyundai Oil Bank, and GS Caltex, are bracing for significantly reduced performance-based bonuses this year as the industry grapples with a sharp decline in profits. According to industry officials on Tuesday, the top four refiners in Korea saw their earnings nearly halved in 2023, primarily attributed to the plummeting global oil prices.

SK Innovation, a key player in the industry, reported an estimated operating profit of 2.3 trillion won ($1.8 billion) last year, marking a 40% decrease from the previous year. The decline in refining margin, influenced by the cheaper oil prices, played a pivotal role in this downturn. Despite a temporary oil price hike in the third quarter, SK Innovation is anticipated to experience a 45% year-on-year drop in its fourth-quarter operating profit.

S-Oil’s annual operating profit is also expected to take a significant hit, decreasing from 3.4 trillion won in 2022 to an estimated 1.9 trillion won in 2023. Analysts predict a 91% drop in the company’s fourth-quarter operating profit compared to the previous quarter, primarily due to the sharp fall in oil prices and refining margins.

HD Hyundai Oil bank and GS Caltex, although not listed on the stock market, are reportedly facing similar challenging situations.

As a consequence, employees at these oil refineries are anticipating much smaller bonuses this year. Despite the companies remaining cautious about the bonus payment, the general sentiment among employees is a preparedness for a leaner bonus season. Last year, these refiners distributed record performance-based bonuses, reaching as high as 1,500 per cent of each employee’s base monthly wage for S-Oil.

However, the landscape has shifted, and opposition party lawmakers’ previous calls for a tax on windfall gains have subsided. The continuous fall in global oil prices has eased the pressure on oil refiners in this regard.

Looking ahead, the oil business environment is expected to remain challenging in the first quarter of this year. Saudi Arabia’s recent decision to slash crude oil prices to its Asian customers has triggered a 4% drop in the West Texas Intermediate, signalling ongoing volatility and uncertainties in the industry.