Hitachi Ltd. will abolish its seniority-based salary system in favor of one based on performance, a senior Hitachi official said.
The official said Thursday that Hitachi hopes to enforce the new pay system in April and management is trying to sell the plan to the company's labor union.
Hitachi is the first major electrical appliance firm in Japan to try to dismantle the seniority-based pay structure. Its decision is expected to affect the entire manufacturing industry nationwide.
The decision follows similar moves by other major manufacturers to abandon the seniority-based pay structure, which together with lifetime employment has been a key feature of Japan's corporate system.
Like other key electrical appliance makers, Hitachi has been struggling amid the prolonged slump in the information technology industry and is facing tough competition in the global market from China and other emerging economies.
"Many young employees are supportive of a merit-based wage system," the official said. "In a globalized market, you cannot secure talented people without a merit-based system."
Under Hitachi's existing pay system, a general employee's pay is based 40 percent on seniority and the remainder on performance levels.
The new system will be based 100 percent on performance.
Hitachi said it hopes to clinch an agreement with the union by March 12, when this year's spring wage negotiations end.
If no agreement is reached by then, the company hopes to set a new deadline for talks with the union and introduce the new pay system as early as possible.