Business

Japan firms slowly moving away from old ways on recruitment and pay

by Junko Horiuchi

Kyodo

Japan’s unique, long-held employment practices characterized by annual new graduate recruitment, lifetime jobs and seniority-based pay raises have helped support economic growth in the postwar period.

But many major companies have begun to question whether to continue with the decades-old system at a time when digitalization and globalization are dramatically reshaping the competitive landscape of their industries.

Keidanren, the country’s top business lobby, is urging member companies ahead of the annual shuntō wage negotiations between labor unions and management to review their annual wage hikes and other employment practices that it believes now hinder competitiveness.

“Innovation, which is essential in the current age, cannot happen if all employees are looking in the same direction,” said Satoshi Mukuta, senior managing director at the lobby, stressing the need to attract experienced talent from outside by reforming the way individual performance and skills are rewarded.

NEC Corp., Fujitsu Ltd. and Sony Corp. are among manufacturers offering an initial annual salary of more than ¥10 million ($90,900) to highly skilled technology talents regardless of age.

Labor unions have given the move a tepid response, with some insisting that the traditional system has brought stable employment and that giving it up could potentially increase job cuts.

“In a company, not everyone is a cleanup hitter. We need to make sure that those who may not stand out but still contribute to the company are rewarded with pay raises,” said an executive at the Japanese Electrical Electronic & Information Union, who asked not to be named.

The Japanese Trade Union Confederation, or Rengo, the country’s largest labor organization, said it can understand some companies’ decisions to depart from conventional recruitment methods.

But it is continuing to request a uniform monthly base pay hike for all workers, seeking a 4 percent increase, while calling for efforts to tackle what it considers the more urgent issue of resolving the wage disparity between regular and nonregular workers, as well as between small and large firms.

Labor groups in the auto industry are more positive about introducing flexible remuneration systems as the industry faces up to a paradigm shift involving the transition to alternative vehicle drive systems, sharing services and digital technologies.

“If we just stick to setting the monthly pay increase margin (in annual talks), such as ¥3,000, or maybe more, it will not necessarily help narrow the gap in wages between large and small member companies,” said Akira Takakura, chairman of the Confederation of Japan Automobile Workers’ Unions.

In a rare move for a big manufacturer, Toyota Motor Corp.’s union also plans to put more emphasis on work performance when determining pay increases, rather than maintaining the focus on seniority, in an effort to motivate younger employees.

Over the past five years, car parts maker NGK Spark Plug Co. has reviewed its seniority-based wage system to give more weight to each employee’s performance.

“We brought changes to our wage system and vigorously implemented work-style reforms to attract experienced people who will drive changes in our business model,” said Executive Officer Kenji Isobe.

While acknowledging the difficulty of “properly” assessing employees’ individual performances, he said the company sees a pressing need to revise its human resources management as the industry goes through pivotal changes.

“We have a sense of crisis about future demand for our parts, as gasoline-powered vehicles will soon peak out and cars become more electrified,” Isobe said.

Construction machinery manufacturer Komatsu Ltd.’s chairman, Tetsuji Ohashi, said, “Each and every company needs to build its own employment system as the old Japanese way is unfitted to the fast-digitalizing industry.”

Analysts say companies have grown more serious about enhancing their productivity, especially after having implemented government-promoted work reform measures in recent years to prevent overwork.

The country saw some success in cutting long working hours, but employers are now focusing on output, they say.

“Companies need to seriously consider how they can provide value to society while being attractive to employees whose mindsets are changing,” said Motohiro Morishima, professor at Gakushuin University, noting that younger people tend to place more emphasis on work-life balance than older generations.

The annual shuntō wage negotiations will get into full swing when labor unions present their requests around mid-February. Responses by the management of major companies are expected about a month later.