Introduction of performance-based wage system and the reactions of labor and management

In January 2004, we at the Japan Institute for Labour Policy and Training (JILPT) conducted a survey on workers´ motivations and ideal employment management, and received responses from 7,828 people at 1,066 companies.

This survey focused on performance-based wage systems, and asked the respondents about the strategy of emphasizing performance more than age or period of service, as the criteria for evaluation. As a result, approximately 60% of the companies said that such system "applied to them" or "applied to them to some degree." Meanwhile, approximately 60% had adopted "a system of reflecting employees' job performance in their wages." It became evident, therefore, that a majority of companies have introduced the performance-based wage system.

An interesting feature was that only about 40% of the workers and 70% of the companies said that, with the introduction of the performance-based wage system, "an atmosphere of trying to enhance workplace performance and achievements" "had intensified," indicating that the atmosphere at the actual place of work does not overly emphasize business performance and achievements as much as the company thinks. On the other hand, 30% of the workers and approximately 40% of the companies felt that "an atmosphere of doing work in a comfortable and leisurely manner" "had weakened," indicating that both workers and companies feel that a sense of pressure has increased, putting them less at ease.

In addition, about 30% of the workers were less happy with their pay and bonuses not accurately reflecting their personnel evaluations and work performance. The results showed that, while performance-based wages have become more common, more than half of the workers were not happy with their wages.

Roughly speaking, the history of wages in Japan has been characterized by long years of effort by numerous scholars and business practitioners who have studied and put into practice job evaluation-based wages that would replace the seniority-based salary system, and considered how they could introduce such wage system or how they could incorporate elements of it into the seniority wage system. In general, however, these efforts have resulted in one failure after another.

It is, of course, virtually impossible to evaluate a certain achievement in ways that satisfies everyone 100%. It is not easy, moreover, to convince as many people as possible how these evaluations can be reflected in wages and bonuses. One thing is certain, however: an endless process of trial and error as well as a substantial amount of time are still needed before a performance-based wage system can take hold in Japan on which both labor and management can agree.