Seniority-based pay, which almost disappeared amid the prolonged recession, may be staging a comeback at some firms where performance-based salaries are not working effectively.
Akira Fujii, president of Tokai Rubber Industries Ltd. in Komaki, Aichi Prefecture, decided that the firm’s seniority system should be reintroduced.
From April, the company will pay the equivalent of two months’ salary to management staff in accordance with their years at the firm.
Many companies began introducing performance-based salary systems after the mid-1990s in a desperate effort to weather hardships brought on by the collapse of the bubble economy.
Fujii joined Tokai Rubber, which already had a merit-based salary system in place, in 1999, having served as managing director of Sumitomo Electric Industries Ltd.
After seeing many plant employees struggling with old machines to manufacture precision products, Fujii decided to draw the line between performance and seniority.
He does not reject the concept of performance-based salaries and is encouraging employees to improve their performance by having it reflected in salaries and bonuses.
But there is a difference between Fujii and other believers in the performance system.
“Rather than inciting a sense of crisis with the whip, saying, ‘Your salaries will drop,’ I thought it better to give them a sense of relief by taking into account their experience at the company and potential abilities,” he said.
The seniority system was thus restored.
Tadazumi Okamura, an official at the Tokyo branch of foreign-affiliated personnel consultancy Towers Perrin, is being flooded with requests from managers seeking to lower personnel costs.
Okamura said companies introducing performance-based pay have sharply increased in number since Carlos Ghosn, president of Nissan Motor Co., successfully achieved a V-shape recovery with his efficiency and achievement policy.
“There are too many enterprises that introduced performance-based wages without fully verifying whether it is suited to their personnel system,” Okamura said.
He said stress is accumulating in enterprises whose business policy frequently changes and that have few staffers competent in evaluating worker performance.
Fujitsu Ltd., which was quick to introduce performance-based pay in 1993, said an employee survey has found that 70 percent are satisfied with their evaluations.
But the company has suffered losses for two years in a row, leaving it behind its rivals, and has had to dismiss 16,000 employees.
Tokai Rubber’s Fujii said there is a period when any employee cannot perform as well as expected. “Even during that period, we raise salaries according to their age,” he said.