Honda Motor Co. has abolished its seniority-based wage system and introduced performance-based pay for the 40,000 rank-and-file employees at the parent firm and nine subsidiaries, company officials said Saturday.

Since October, the automaker has been paying monthly salaries based on six qualification grades allocated to employees and their job performances, the officials said.

Lower performance assessments can result in pay cuts, but actual cuts will only take place from fiscal 2007 because the company decided to have a transition period until the end of fiscal 2006, they added.

Most Japanese firms have a seniority-based wage system that automatically raises salaries every year, regardless of an employee’s performance.

As part of efforts to survive intensifying competition in the auto industry, Honda has been negotiating with its union for a new wage system to replace seniority-based raises.

Some companies have started paying employees in managerial positions salaries that are based on performance, but it is still rare for a company as large as Honda to introduce a merit-based system for rank-and-file employees.

A number of major firms are urging their labor unions to accept alterations to seniority-based pay raises as they prepare for annual salary negotiations in the spring, and the decision of Honda, which has reported record sales and profits for the first half of the current business year, may influence wage talks at other companies.

Wage raise put off

OSAKA — The management and labor union of Sumitomo Electric Industries Ltd. have agreed not to implement regularly scheduled annual pay raises this year, effectively cutting employees’ wages, according to company and union officials.

The labor union of the Osaka-based producer of electric wires and cables has accepted a management request to freeze mandatory pay hikes for one year, to the end of March 2004, in light of the company’s deteriorating business situation, union officials said.

Sumitomo Electric expects to post a group net loss of 20 billion yen for the year through next March 31, as its earnings were hit by falling demand for fiber optic products and semiconductor materials for use in cellular phones.

The union believes maintaining jobs at the company should take priority over everything else for the moment.

A company executive said the agreement is “a step needed for returning to the black, which we aim to do by any means.”

“We want to achieve a recovery in our business by sharing the pain and keeping personnel costs unchanged,” the executive added.

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