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Bankers once rode high as the elite of Japan. Along with top-notch bureaucrats in the Finance Ministry, they represented the best the Japanese education system had to offer.

Now, the public derides them as inefficient, incompetent and overpaid.

Their lending practices are blamed for causing the asset-inflated bubble and for the consequent slumping economy. Despite an infusion of public money, bad debts continue to rise at major banks, eating away at their ability to finance a recovery.

Banks say they are doing their best to reduce redundancies and to improve the cost-effectiveness of their human capital.

The four major banking groups have cut their workforces by 28,000 employees, or 20 percent, in the past five years, largely through attrition and early retirement.

By April, the four major groups — Mizuho Holdings Inc., Mitsubishi Tokyo Financial Group, UFJ Holdings Inc. and Sumitomo Mitsui Banking Corp. — had set up personnel programs that include such revolutionary ideas as linking salaries to merit and position.

The four now boast manager-assessment systems that use a common set of guidelines to improve objectivity and fairness, two surprisingly new concepts in the world of Japanese banking.

The questions waiting for answers are how far these changes will be carried out in practice and how quickly any overhaul will bring results.

The idea is to depart from basing pay on seniority to awarding salaries based on how well an employee can deliver the goods right now.

Banks’ powerful personnel departments used to be credited with stabilizing banking operations by “taking care of” employees. By mapping out job placement, they gave promising recruits choice positions, allowing them to rise in the ranks. But this method is increasingly under attack.

The same personnel departments are now blamed for organizational rigidity, for reshuffling staff every few years (which prevents them from acquiring expertise) and for discouraging young employees from taking risks, even those that might possibly improve earnings.

“Basically, if you rise through the ranks, taking only the training the bank gives you, you’re being trained to become a branch-office manager,” said Midori Yoshida, president of I-Brain, a headhunting firm specializing in the financial sector. “You’re well-rounded, sure, but you’re not an expert in anything.”

Personnel experts are urging banks to change.

“Unless banks optimize the use of manpower, they will not be able to compete with European and U.S. financial institutions, even in the domestic market,” said marketing and public relations manager Minato Asakawa at Hay Group (Japan) Ltd., a U.S.-affiliated consulting firm specializing in human resource management.

Asakawa often makes proposals to client banks for the introduction of results-oriented management systems and targeted recruitment of skilled workers. But, he said, top management at times opposes the suggested reforms, and banks go away with only minor changes in their management systems.

Consensus-based decision-making and hazy lines of responsibility are preventing these efforts from bearing fruit, Asakawa said.

“Still, it’s a start. There is a consciousness that banks need to at least make a gesture that they are changing.”

In response to these charges, Sumitomo Mitsui last April began giving more say to employees with more than eight years at the bank about where they wished to be placed. Among their choices is the option to join teams of professional dealers and fund managers, whose pay is 100 percent commensurate with performance.

Mitsubishi Financial Group has delegated personnel decision-making, assessment and career counseling to personnel sections set up in each department.

The decentralized structure gives each department more say in choosing employees, who apply for placements in their third year with the bank, and provides more training in any chosen field.

Banks are finally getting the message that putting off reforms can be catastrophic.

At Mizuho Holdings Inc., a three-headed, three-bodied personnel monster slowed decision-making and triggered furious internal battles over which of the three consolidating banks’ computer systems should prevail.

The result was the worst computer glitch in the industry’s history, complete with paralyzed cash machines, thousands of customers billed twice for the same transaction and millions of fund transfers for utility and credit-card bills unpaid.

While conceding that some change is necessary, however, bankers argue that revamping personnel does not necessitate throwing out a system that provided stability by giving employees ample time to train.

Domestic banks are also loath to recruit midcareer workers. The head of a personnel department in one major group said that with the exception of professional traders or temporary workers, new recruits to nonentry-level positions are simply not worth the cost of training.

Each bank has a different way of addressing letters and memos, for example, and it takes time for recruits to adapt to a completely different culture, he said.

Japanese banks seem to prefer offering staff on hand midcareer training rather than searching for midcareer professionals.

Emiko Umemoto, president of Dominique H.R., a Tokyo-based human resources firm, said she’s amazed that banks continue to send employees to the U.S. and pay their way as they study for a master’s in business administration.

“They make the best targets for headhunting,” she said. “They’re familiar with the Japanese financial industry and they’ve gotten a taste of the incentives abroad and decision-making abroad.”

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