Business / Corporate

Toyota union to propose merit-based pay-raise system as seniority model faces scrutiny

Kyodo

A union at Toyota Motor Corp. is planning to propose that a larger emphasis be put on performance when determining workers’ pay increases, rather than continuing the current system in which seniority is the main criteria, a source close to the matter said Thursday.

The policy set out by the Toyota Motor Workers’ Union is widely used as a standard-setter for annual shuntō wage negotiations across Japan each spring. The proposed system, which also reflects management’s wishes, would increase the possibility that larger wage gaps could form between union members at Toyota.

The policy change comes as Japan’s largest automaker faces a difficult market environment, with the industry rapidly shifting to electrified and autonomous vehicles, leaving the company looking to improve its competitiveness. Some union members have called for the introduction of a system in which wages are decided on the basis of performance, the source said.

The Keidanren — the country’s largest lobby group, which is also known as the Japan Business Federation — held a meeting Thursday in which Prime Minister Shinzo Abe called for the cooperation of business leaders in increasing wages. The speech marked the seventh consecutive year in which he has made such a request before wage talks begin. “What is important is investment in human resources,” Abe said. “I am looking forward” to continued pay increases for next spring, he said without mentioning specific levels.

Wage increases are seen as essential for achieving the 2 percent inflation target pursued by the Abe administration and the Bank of Japan. The October consumption tax hike to 10 percent can only dampen consumer spending unless people have more money to spend.

The Keidanren has also called for a large-scale review of Japanese-style employment practices and wage-setting systems, as part of efforts to attract talent. Traditionally, Japanese workers have received automatic wage increases on the basis of their age or length of service. “As the industrial structure changes, companies need to adopt a system that pushes employees to take on new challenges,” Keidanren Chairman Hiroaki Nakanishi told a recent news conference. “Systems at some Japanese companies no longer match the modern era.”

The Toyota Motor Workers’ Union is considering proposing that wage increases be more focused on a five-grade evaluation system, with an employee graded higher receiving more than a co-worker who is evaluated less favorably, the source said.

It also plans to urge the company to train managers to ensure they can deliver fair assessments of employees, the source said.

In the previous wage negotiations, Toyota’s management said, “Going forward, we need to seriously consider whether there is a need to raise wages uniformly.”

“It may be better to allocate larger pay raises first to those who worked hard but who were not paid enough,” it said.

The union will present its plan to members in late January and make a decision the following month, the source said.

Some other major Japanese companies have already decided to change their wage systems from approaches based on seniority to those reflecting ability and performance.

From July 2021, Mizuho Financial Group Inc. is set to abolish automatic wage hikes for some 5,000 managers at its group firms, including Mizuho Bank Ltd. and Mizuho Trust & Banking Co., as a step to enhance the motivation of younger employees, a source close to the matter said earlier.

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