Economical sciences/7.
Accounting and audit
Bozhina A.A.
National
University of Food Technologies, Kiev, Ukraine
The
four pillars of Japan’s postwar employment system have been lifetime
employment, the seniority wage system, the bonus system, and enterprise unions.
Although only about one -fourth of the labor force enjoys all of these
conditions of employment, those who do are the most privileged part of the
labor force. There is the greatest competition for jobs in large corporations
that carry these benefits, and smaller companies try to imitate them in order
to keep their workers. These employment practices are expensive for companies
to maintain, and they reduce employers’ flexibility to respond to changing
economic conditions. They are not offered to every worker. The Japanese
employment system distinguishes between regular or permanent employees, who are
entitled to these privileges, and contract or part-time workers, who do not
receive them. Regular and contract or part-time workers may work together in
the same company, and even do the same jobs, but their employment conditions
may be very different. Large companies are able to offer these privileged
working arrangements to regular employees in part by entering into
relationships with smaller subcontracting companies whose workers do not enjoy
such generous terms of employment.
Lifetime
employment is a distinctive characteristic of Japan’s post-war labour system,
although it never applied to many workers in the labour force and is now
declining. This is how the system works: Large companies hire regular employees
right out of school and keep them until retirement. New employees are chosen
for their general potential, not because of any special skills or training.
Such employees are considered the company’s human capital, to be trained,
cultivated, and assigned to posts in the company’s best interest. Although
there is no written contract guaranteeing lifetime employment, both employer
and employee understand their mutual obligations under this system. The
employee is to serve the company loyally and not try to leave for a better
position. The employer will not dismiss or lay off the employee even in severe
economic conditions. In addition, strong labour laws protect workers from being
dismissed. This system also means that large firms train and promote their own
employees to fill higher managerial positions, rather than hiring specialists
or senior managers from outside the company. This system worked well during
Japan’s long period of post-war economic growth with a young, energetic work
force. In the 1990s, during a prolonged economic recession and with an aging
workforce, the lifetime employment system has begun to break down.
The
seniority-based wage system (nenkō joretsu) has gone hand in hand with
lifetime employment. Companies maintain very broad employment categories or
ranks, rather than paying employees for the particular jobs they perform.
Employees begin with a standard basic wage, and receive an increase in pay for
each year of service. An employee who leaves to join another company would
start from a lower end of that company’s wage scale and his or her income could
be lower than other employees' of the same age in the same company. The
seniority-based wage system keeps workers from changing jobs, since after a few
years of employment they enjoy a wage level that they could not match if they
moved to another company. The seniority-based wage system underpays young
workers, but rewards them well in later years, even if their productivity
declines. It offers workers a strong incentive to remain with their first
employer. An early retirement age also supports the seniority wage system,
normally forcing employees to retire from their regular positions at age 55 to
62. After formal retirement they may be rehired by the same firm under
short-term contracts, or may take other temporary employment until they are
truly ready to retire several years later.
After
the failure of cost cutting in the early 1990s, the Japanese firms finally decided
to replace the 1940 system. Because all the solutions that Japanese firms came
up with could not stop the decline of the economy, employers finally decided to
replace their traditional management based on lifetime employment and seniority
wage system to a payment system based on performance.
Many
Japanese companies took the first step of replacing their wage system based on
seniority to performance, while they announced on the effectiveness of the
performance-based pay in order to get accepted by their employees. The
employers’ slogan was “the equality of opportunity.” This means that everyone
has an opportunity to earn more money. In contrast, they defined the
seniority-based pay system as “the equality of results.” This means that
everyone can receive more salary, as one gets older.
The
dramatic shift to the performance-based pay system started in the second half
of 1990s. There were three stages many companies took when they shifted their
management system to the performance-based pay system. The first boom came
after 1996 among the advanced and global firms which competed against foreign
firms with the gradual shift. The second boom came around 2000, and many large
firms largely shifted their management system to performance-based pay. Then,
the boom started to calm down for a while. The third boom cam in 2003 among
medium and small-size firms which were largely influenced by the huge shift
among the large firms. However, not many firms succeeded in implementing the
performance-based pay system.
The
case of Honda Motor. One idea of the
shift to the performance-based pay system was that the companies required
employees to make personal goals to determine their bonus, in order to increase
their productivity. For instance, in 1992, the employers at Honda Motor first
paid bonuses that were about 40% of the annual salaries to their employees
based on their rate of accomplishment of self-defined goals, rather than based
on tenure. However, Honda had not yet started the second step, which was how to
treat those who were less productive. This idea was acceptable to the younger
generation who has not yet experienced the “1940 system,” but older workers had
some problems in understanding this new idea.
The
case of Fujitsu. Fujitsu, one of the largest electronic firms in Japan, also
adapted the self-set goal system. In Fujitsu, the self-set goal was graded into
five categories; SA (best), A, B, C and E (worst), but the difficulty of the
goal was not considered. As a result, all workers tended to set relatively easy
goals to achieve SA. The reason of Fujitsu’s failure was that the managers did
not pay much attention to the process or the difficulty of the workers’ goals.
After the failure, Fujitsu added an evaluation process to the setting of goals.
However, it is very hard to define what the good process is and what the bad
process is. The process evaluation made the workers confused even more.
One of
the severe problems that Fujitsu faced was that people, who should have been
evaluating workers based on the performance, were not the same people who
conducted the evaluation. In fact, those who created the new salary system were
from a personnel department in the companies, so they, in many cases, did not
what is going on at the work cites. Because of this, there was a gap in the
understanding of the new evaluation process between people from a personnel
department and the middle managers who actually evaluated their workers. It
would work better if the company would have trained those middle managers to
get used to evaluating workers based on performance, then the company would
have adapted to the performance-base pay system.
The
case of a large precision equipment manufacturing firm. It is very important to
evaluate workers fairly if a company evaluates workers based on performance. A
large precision equipment manufacturing firm adapted “the feedback system” in
order to evaluate workers fairly. The feedback system provided workers with a
better understanding of evaluation. Usually, the workers receive the feedback from
their direct boss when they receive their final evaluation. However, it did not
work effectively because even though a direct boss evaluated a worker well, it
did not necessarily mean his final evaluation would also be high.
At the
company, the evaluation is not only determined by the direct boss, but also
many other portions, such as the productivity of the department and the
evaluation of the boss from the other departments. Because what the boss told
the workers could be different from the evaluation, the workers started to
complain to the boss about the unclear and unfair evaluation, but, in most of
cases, the boss could not explain it well, which made the workers dissatisfied
and distrustful.
Although
the idea of the feedback system is very effective, if a company fails to
implement it, it just makes workers unhappy and unsatisfied. To satisfy workers
with their evaluation, the company must clarify what makes their evaluation low
or high.
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