Over the years, Japan’s employment practices have become routine and rather predictable; almost becoming a tradition in itself. Said practices are characterised by annual fresh-graduate recruitment, lifetime jobs, and seniority based pay rises. We cannot overly fault such a system, as it was these practices that helped support the miraculous economic growth of post-war Japan.

As of late, major Japanese companies have begun to question whether to continue this decades-old system at a time where digitalisation and globalisation is flipping the competitive landscape over in dramatic fashion.

Keidanren, the country’s top business lobby, is urging member companies ahead of the annual “shunto” wage negotiations between worker 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. It was also stressed that Japanese companies needed to attract experienced talent locally as well as abroad. However, the archaic practices that Japan currently adheres to often deter talented foreign workers who value rewards based on individual skills and performance.

Companies such as NEC Corp., and Sony Corp. are examples of Japanese companies who have eschewed traditional pay practices and offered annual salaries of up to 10 million yen (US$90,900) to highly-skilled technology talent regardless of age.

Several worker unions have offered a lukewarm response, citing stable employment as being one of the major benefits offered by the old employment system.

“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 rises,” said an executive at the Japanese Electrical Electronic & Information Union.

However, other worker unions have expressed their understanding as to why some companies came to the decision of departing from conventional recruitment methods. Groups representing the auto industry are also lobbying for the introduction of more flexible remuneration systems as the industry is facing a paradigm shift towards 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 yen, 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.

Analysts have also concurred that Japanese companies are overall growing more serious about enhancing their productivity after the government implemented work reform measures to prevent overwork. Said measures include attempts to cut down long working hours and has seen moderate success throughout the years.

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

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