Vol.36-No.11 November 1,1997
Faculty of Policy Management
Despite widespread debate on the "demise of Japanese-style management" and on changes now occurring in human resource management (HRM) practices in Japan, little employee-side story has been told. What type of rewards do employees consider important? Are they likely to be more motivated by the newer practices being proposed? To what extent do they feel committed to their firms and what do they think about their careers? In this paper, these and other questions are examined, using data from a survey conducted at the Japan Productivity Center for Socio-Economic Development in 1996 (see Figure 1). The focus in this paper is on changes in HRM practices related to white-collar and managerial employees.
2.0 Changes in White-Collar and Managerial Employment
Employees working for large Japanese corporations have enjoyed a prolonged period of company growth and a relatively privileged employment status from the late 1950s through the 1980s. The pressures for individual contribution and company loyalty were intense. An implicit quid pro quo existed, however. For their dedication and personal sacrifice they were entitled to a good job and employment security. Managers usually enjoyed continuous salary growth, regular career promotions, and long-term employment security. The large recession experienced by Japan in the 1970s (caused largely by the two oil crises) did not substantially change employment patterns for the core employees in large firms.
However, in recent years changes have occurred in the circumstances which had allowed Japan's large firms to maintain structured internal labor markets and formal arrangements for managing white-collar and managerial employees in the manner just described. Pressured by global competition, rapid by technological change and, most importantly, by the high cost of labor due to the aging of the workforce, many employers have begun to question the effectiveness of current HRM practices as they apply to managers and other white-collar workers. It has been argued by many that the arrangements for long-term employment and seniority wages need a major overhaul. While the current commotion may mean yet another revision as part of the on-going series of adjustments that have been occurring since the 1960s, two aspects of the current moves relate particularly to white-collar and managerial workers: the introduction of competitive appraisal practices which emphasize individual differentiation and the externalization of core, regular-status employees (see Morishima 1995 for details).
2.1 Competitive appraisal practices which emphasize individual differentiation
This advances reflects a shift away from basing employee rewards on criteria related to seniority and capability development. With regard to middle and senior managers, the current change is resulting in an increasing emphasis on the more careful evaluation of employees in terms of their contributions to the organization through such practices as performance-based evaluation and management-by-objectives. This change is most visible in the arrangements for the compensation of middle and senior managers, although a number of firms have also introduced similar measures for a range of other non-managerial white-collar workers. According to a survey conducted by the Ministry of Labour in 1995, approximately 7.9 percent of large firms (with over 1,000 employees) have built some type of pay-for-performance criteria into their compensation formulae for white-collar workers. Another 11.6 percent are considering do so over the next five years.
Another common practice is to assign employees early in their career with the firm to managerial and supervisory positions. This finding goes against currently the accepted practice that formal status differentiation among employees in the same cohort (defined by year of entry and occupation grouping) occurs only after 7-10 years of en masse advancement with little individual differentiation. The approach to promotion was considered necessary in order to select employees with managerial.
Two surveys conducted six years apart suggest that the timing at which firms introduce status differentiation may now be occurring earlier in the white-collar employees' careers than previously was the case. In a Ministry of Labour survey conducted in 1987, more than 20 percent of firms reported introducing status and large pay differentials more than 10 years after the cohort entered the firm. Another 40 percent introduced such differentials after the cohort had been employed for 5 to 10 years. In a Japan Institute of Labour survey conducted in 1993, the proportion of firms introducing such differentials after 10 years dropped to 7.6 percent, with 33.1 percent doing so after the cohort had been employed 5 to 10 years. In this survey, the largest proportion of firms (46.3 %) reported that they would introduce large status and pay differentials in the third year.
2.2 The Externalization of Regular Status Core Employees
The externalization of employment has been proceeding in Japan in a manner similar to that found in other industrialized nations. In particular, Japanese firms have begun to externalize white-collar and managerial positions not only through the increased use of part-timers and temporaries (Osawa and Kingston 1996), but also by hiring limited-contract employees and sorting employees into categories having different levels of employment security. The goal has been to introduce mobility and to obtain a better matching of employees and jobs. This is done by reducing the likelihood of long-term employment and by giving both employees and employers more autonomy in choosing the "right" partners.
Some Japanese firms have also begun to utilize a variety of devices to sort white-collar workers into employment categories with different levels of employment protection. According to a survey conducted by the Ministry of Labour in 1990 and 1996, the number of firms offering multiple career tracks increased from 6.3 percent of all firms in 1990 to 11.5 percent in 1996. Firms having employees "retire" from managerial positions at a pre-set age increased from 11.8 to 15.8 percent during the same period. Finally, "specialist" career tracks were used in 19.9 percent of the firms in 1996, compared to 16.2 percent in 1990. "Specialists" usually enjoy less employment protection than managerial-career employees, although they may have been hired in the same group.
Finally many firms have also started to remove senior members of the management ranks from their white-collar workforce permanently. Japanese firms often use shukko and tenseki to transfer their employees to other firms and organizations. Some transfer destinations are affiliated in terms of capital or business transactions; others have no such affiliation (Sato 1996). With shukko-, employees are temporarily lent to other companies. With tenseki their official employment status is permanently changed and they become an employee of the receiving firms. Strategies to remove senior employees range from early voluntary retirement to aggressive outplacement counseling (called Katatataki). As a result of a combination of these approaches, Japanese white-collar and managerial employees now find themselves placed in various places on the continuum from being strongly protected to being weakly protected.
Overall, increasingly competitive compensation and promotion practices, and the growing use of externalized employment arrangements indicate Japanese employers' attempts to gain flexibility and to control cost with regard to their white-collar and managerial HRM. We will examine employee attitudes toward these new practices.
3.0 Employee Motivators
What motivates employees? More specifically, do rewards and reward allocation procedures associated with the new practices motivate employees? We asked about the importance of the following items in motivating respondents to work hard: (i) establishment of clear performance goals, (ii) open feedback on evaluation results and on the reasoning behind them, (iii) use of performance and output in employee evaluation, (iv) assignment of those with superior talent to important positions regardless of age or seniority, (v) effort taken into account in employee evaluation, (vi) intra-company posting of vacancies, (vii) promotion and upgrading in the skill-job grade, (viii) long period of evaluating managerial candidates with little differentiation among cohort members in terms of rewards during that period; and (ix) internal skill development through work experience. Respondents were asked to rank each item from "important" (coded as "5") through "neither important nor unimportant" (coded as "3") to "unimportant" (coded as "1").
The items cover a wide range of rewards and reward allocation procedures offered by Japanese organizations. Some of them (e.g., use of performance and output in employee evaluation) are not considered as traditional Japanese HRM practices, whereas others (e.g., the long period of evaluation) are seen as being more established practices in large Japanese firms. Figure 2 shows the average for each of the nine items. "Internal skill development through experience" was considered the most important by the respondents, and the long period to evaluate managerial candidates the least important.
Three conclusions may be drawn. First, many of the newer practices were highly rated by the respondents. For example, "use of performance and output in employee evaluation" and "open feedback of performance evaluation results" were considered as highly important. Second, the most important motivator in the above list was "internal development of skills through experience." Thus, while many Japanese white-collar employees appear to accept the newer practices, employees as a whole still want to have in-house skill development, the hallmark of Japanese employment practices to date (Kawakita 1996). Third, some current HRM practices, such as the long evaluation period for managerial candidates, are not favored by employees. Also, although some traditional practices such as "promotion and upgrading in the skill-job grade system" and "considering effort in employee evaluation" are still seen as having an important role to play, they were assigned lower ranks than the new practices mentioned above.
A weak relationship emerged between employees' hierarchical positions and their attitudes toward the new reward systems. Higher ranking managers were more favorably disposed to the newer types of rewards and reward allocation practices. As for age effects (Figure 3), the general pattern is that the importance attached to all of these items declines as employees approach mid-forties and picks up again. One can speculate that employees in mid-career might have extra-work needs attributable to family and other non-work responsibilities. Thus, their motivation might be related to such items as time-off and extra compensation. Finally, the results were quite stable across all job categories.
Overall, Japanese managers and non-managerial white-collar employees strongly favor the newer practices proposed by employers. However, they also seem to feel that some of the current practices (especially in-house training through experience) warrant careful consideration.
4.0 Choice of Employment Practices
Do employees prefer to choose newer HRM practices when given a choice? Respondents were posed with four pairs of alternatives employment practices (see Figure 3) and were asked to choose A or B from each pair. One choice (A) represented the newer approach to employee management; the other (B), a current practice. (See the results in Table 1.)
With regard to Choices 3 and 4, approximately 80 percent of the white-collar employees prefer newer practices to current practices. A strong majority of employees (78.7%) prefer to have staffing practices which promote employees with high potential even though that may involve reversal of seniority order and hierarchical positions (or simply put, working for a boss who is more talented but younger than the respondent). An even higher proportion of employees prefer to acquire skills that are portable across firms even though that the job may not lead to promotion to senior management positions.
However, the results show a somewhat different pattern when it comes to remuneration. Only slightly more than half of the employees prefer to have their wages based solely on job performance without consideration of age or seniority. Many Japanese employees still favor having at least some weight given to seniority or age and the notion of life-cycle needs. Moreover, about three quarters of employees want to work in a company that invests heavily in skill development, and would not want to see that investment foregone simply for a higher salary. The provision of internal training appears to be a very strong expectation among Japanese employees.
5.0 Attachment to Firms and Career Preference
The final question examined here is: how do employees view their employing organization relative to their work, and how do they think about the development of their own careers. The widespread idea is that Japanese employees show high commitment to their employing organizations and desire to develop their careers within the firm. If, however, as changes in HRM practices occur, employees' attachment to their firms may become weaker and their concept of career may become similar to that of the professionals. Alternatively, such HRM changes would not be effective unless employees' relationship to the firms becomes more "market-like" and the exchanges of rewards and labor more explicit. They may also have to accept careers as professionals with specialized skills. Will Japan's white-collar employees really go for such an employment relationship?
We posed two questions to examine this issue (see Figure 5). Again, "A" was the view thought to be closer to the viewpoint of the new HRM practices. Respondents were asked to indicate on a scale ranging from "5" (having a view close to A) to "1" (having a view close to B). Table 2 shows the results.
The results indicate that more than half of the respondents are willing to move to another company to be able to do the type of work they prefer. The differences by age, however, are quite considerable. Fewer of the older respondents (about 37 %) would move.
Regarding their preferred career, less than half were interested in having a career as a professional with specialized skills, and the percentage again drops for the older age groups. Thus, the majority of employees still prefer to have jobs that provide them with career development with broad skills within their firms, although many are also inclined to move to other firms to be able to do the work they like.
The introduction of flexibility and cost controls in the employment of white-collar workers and managers seems to be in vogue among Japanese employers. Pressures for change come from the new competitive environment and rapid aging of the workforce. It has also become a fad to attempt to change white-collar HRM. In response, large employers in Japan have started another round of attacks on current practices. Two trends are most visible. One is the introduction of competitive appraisal practices which result in the differentiation of employees. The second is the externalization of core, regular-status employees. One missing actor in this discussion, however, has been the employees. They constitute the "demand" side of the change equation. Their attitudes were examined in this paper.
The survey data presented in this paper allow us to conclude that employees' attitudes are mixed. Employees seem to favor many of the newer practices such as use of performance and output in employee evaluation and assignment of those with talent to important positions regardless of their seniority and age. In this sense, more performance-based reward and staffing practices are strongly supported or at least accepted by white-collar employees.
However, the same employees would also like to maintain current patterns of internal human resource development and company investment in skill development. A majority also appear to prefer in-house career development with training in a broad range of skills. An important issue is that this type of in-house training investment assumes that employees stay with the firm for a long time. This approach also tends to emphasize the development of latent abilities rather than past performance and output when it comes to evaluating employees.
The changes in HRM practices which large Japanese firms are now introducing will make the employee-organization linkages more "transactional" or "market-like". The duration of employment may also become much shorter while the terms of employment more explicit. Training is likely to be conducted outside the corporate settings and in previous jobs. Employees will be expected to be fully trained and able to take responsibility when they are hired. Under these circumstances, the desire of many employees for their employing organizations to provide training and in-house career development may not be satisfied. The results presented in this paper suggest that we need to engage in a much larger discussion of the impending changes in HRM practices and their implications for employees, especially in terms of whose responsibility it is to develop job-relevant skills and to what extent employees are expected to invest in human resource development.
Kawakita, Takashi. "Japanese In-House Training and Development." Japan Labor Bulletin 35.4 (1996): 5-8.
Morishima, Motohiro. "Evolution of White-Collar HRM in Japan." In David Lewin, Bruce E. Kaufman, and Donna Sockell, eds., Advances in Industrial and Labor Relations, vol. 7 (1996). Greenwich, CT: JAI Press, 145-176.
Osawa, Machiko and Kingston, Jeff. "Flexibility and Inspiration: Restructuring and the Japanese Labor Market." Japan Labor Bulletin 35.1 (1996): 4-8.
Sato, Hiroki. "Keeping Employees Employed: Shukko and Tenseki Job Transfers-Formation of a Labor Market Within Corporate Groups." Japan Labor Bulletin 35.12 (1996): 5-8.
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