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Honda says profit will determine pay

by Matthew Winkler and Alan Ohnsman

Bloomberg

Honda Motor Co. Executive Vice President Tetsuo Iwamura said the automaker will set pay based on reaching profitability targets rather than government directives on how fast to increase compensation.

Prime Minister Shinzo Abe has called four meetings since September with union and business leaders to persuade them to build a consensus on the need for higher wages to end 15 years of deflation.

Toyota Motor Corp. and Hitachi Ltd. are among the manufacturers that have said they will comply.

“We respect his request,” Iwamura said in an interview in New York on Thursday. “Our first priority is to improve profitability. Then we will consider the reward for our stakeholders and our associates.”

The carmaker, Japan’s third-largest, in March boosted annual bonuses for workers to the equivalent of 5.9 months of pay from 5 months a year earlier. A further increase in compensation next year is “likely,” Iwamura said.

“We are aiming for a ¥780 billion profit this fiscal year,” said Iwamura, the second-ranking global executive for Honda. “Once we achieve that, we have the resources to share with our associates.”

Honda is projected to earn ¥828 billion in operating profit, according to the average of 23 analyst estimates compiled by Bloomberg, exceeding Honda’s forecast for the year.

The Abe administration’s reflation efforts have succeeded in stoking exporter profits with a cheaper yen, which increases the value of goods sold abroad. The currency’s decline has helped send the Topix index toward its best year since 1999, with a 43 percent surge this year.

With consumer prices now rising at an annual pace of about 1 percent, higher wages will be needed to avoid hurting households that also face a 3 percentage point bump in the consumption tax in April.

Abe, in a Dec. 6 interview, singled out Hitachi and Toyota for promising to increase pay.

“He is asking us to reward our associates, and we are thinking about that at this moment,” Iwamura said.

Such a move next year could come in the form of a straight wage increase, higher annual bonuses or an improvement in benefits, he said. “It could be a combination of all three for Honda.”

Honda shares have risen 31 percent this year.

“What we want is for wages to rise more than prices,” Abe said. “We want to enter a virtuous cycle as quickly as possible,” where economic growth propels corporate profits, employers raise compensation and workers spend more, he said.

Abe pledged to forge ahead with structural reforms designed to open business opportunities in industries from health care to agriculture. He said his Cabinet will adopt a program laying out deregulation priorities in the new year, with a minister placed in charge of the effort.

Toyota, Japan’s largest manufacturer, last month predicted net income would rise 74 percent to ¥1.67 trillion in the year through March, aided by a weaker yen. The currency has fallen more than 20 percent against the dollar since mid-November last year.

Hitachi projects that its operating profit will jump 19 percent to a record ¥500 billion in the year through March.