LABOUR-JAPAN: Pay Now Linked to Performance, Not Seniority

By Suvendrini Kakuchi Reprint | | Print |

Suvendrini Kakuchi

TOKYO, Jun 27 2006 (IPS) - Hiroo Nishimura, 57, head of dining room services with a large restaurant chain, is bitterly opposed to moves by the management to adopt a salary system that is based on performance rather than seniority.

”I started work as a waiter with a small salary and then worked hard for 27 years to achieve my current position,” says Nishimura. ”No way am I going to allow younger staff to get paid better than I am.”

Nishimura, say experts, represents a growing number of people in Japan who are unhappy with the adoption of U.S.-style, performance-based salary systems that are replacing the traditional seniority-based approach that has long been linked to job security in Japanese companies.

They explain the opposition displayed by workers like Nishimura has resulted in high unemployment rates for middle-aged men -currently over ten percent – in companies that have adopted merit-based pay as necessary to stay competitive and cut costs.

”Japanese workers are not yet ready to enter the struggle for advancement under the performance principle. There is now the danger that performance based salaries are driving a wedge between them and management and posing a threat to corporate profits,” said Toru Nishida, head of the wage policy section at Rengo, Japan’s largest trade union.

”Our basic position now is that employees should not be judged solely on their working ability. Rather, managements should adhere to human resources policies that develop a trustworthy relationship with the employee that will benefit both parties,” he explained.

For decades, Japan followed a model of corporate governance where the interests of shareholders were balanced against those of employees and other stakeholders -, unlike in the U.S. where shareholders have also reigned supreme. Japanese companies would invest in employees, providing them with training and other opportunities for advancement and offering them ‘lifetime employment’.

But those practices have gradually given way to U.S. modes of employee relations. Nishida referred to new polls that show 60 percent of Japanese companies having performance based wage systems that are supposed to boost competitiveness and worker morale but are in fact reporting mixed results.

These surveys show that companies are now realising that one of the most important sources of competitiveness is the ability to attract and keep top-notch talent and this could mean developing a special Japanese style management system that incorporates both traditional job security and global competitiveness.

A leading figure in the search for an effective human resources strategy that reflects this goal is Fujio Mitarai, head of Canon Inc, the well known cameras and precision instruments maker, who also is chairman of the Japanese Business Federation, Japan’s main business lobbying group.

Since taking office in May, Mitarai, has spearheaded a campaign that supports life-time employment and has said publicly that a corporate official who fires employees, as a means of slashing fat, should be seen as a failure.

Mitarai and his predecessor, Hiroshi Okuda (outgoing Toyota Motor Corp. president), are calling for reforms in management where the focus does not rigidly follow age -based wage hike systems and stresses unity between management and labour.

”The emerging new management model is marked by strong market orientation based on the assumption that a company cannot survive without support from the consumer, capital and labour markets,” wrote the ‘Nikkei’, Japan’s leading business newspaper in March.

Prof. Koichi Ishiyama, business expert at Tooin University, argues that as Japan faces increasing competition in the global market there is definitely going to be marked shift to performance based hiring as companies struggle to stay afloat.

”Team work is highly valued in Japan but this style will be hard to maintain for companies that need to make profits a priority. Against this backdrop, now is the time for a management style that also allows enterprising individuals to earn more than others even if they work in a team,” he said.

Indeed, surveys carried out by the Japan Productivity Center on new recruits hired in May, that marks the beginning of the 2006 fiscal year, showed young people leaning toward a team-work mentality even more than their predecessors.

More than 70 percent of those polled replied that they wanted to work in a place where the achievements are shared among team members, the highest percentage since 1997.

Hideharu Sekizwa, spokesman for Hakuhodo Research Institute, a prestigious private think-tank, explains that younger Japanese are keen to have jobs that straddle both their ambitions as well as provide some security.

”There is a growing feeling that Japan should look more closely at the European model where jobs are not slashed like in the United States. With domestic issues such as a low birth rate and the emerging income gap, there is a search for an answer that is based on an overhaul in management that respects its traditional emphasis on teamwork but also encourages individualism to a certain extent,” he says.