New moves in performance-based compensation

Ten years have passed since the performance-based compensation system was introduced with great fanfare at Japanese companies, long known for their "follow the majority" mentality. Japan Labor Flash has previously showed survey results that point to the fact that not many companies claim to have reaped substantial benefits of performance-based compensation, and that the system is not as highly evaluated among company employees as the management would like to think.

Even if a company wishes to scrap the seniority system, it often finds it difficult to carry out job analysis or establish systems of evaluation that are satisfactory to all, and the current situation is such that "performance-based system" is still in name only.

In light of this situation, Fujitsu, formerly a frontrunner in the introduction of performance-based compensation through a target-based management system, announced that it would modify its evaluation system for executives from an individual-based system to the one centered on operational headquarters or various organizations, thereby shifting its emphasis from individual to team evaluations. Fujitsu plans to introduce this system in FY2005.

The new evaluation method involves the following procedures: (1) the CEO decides on total personnel expenditure for each operational headquarters or group, based on the performance of each and on the current situations within the industry; (2) the heads of each organizational unit evaluate the performance of department directors, including teamwork and development of human resources, based on a predetermined point system; and (3) general managers evaluate section chiefs in the same way. As before, the results of the evaluation are reflected in lump-sum benefits and in sections of employee salaries.

Fujitsu plans to wait to see the results of this system before introducing it to the rank and file. In the meantime, the company intends to keep the target-based management evaluation system for these ordinary employees, but will position the degree of achievement merely as one indicator in the overall employee evaluation. In this way, Fujitsu aims to place more emphasis on teamwork, one of the characteristics traditionally seen with Japanese firms.

Discontentment among Fujitsu employees that the former target-based management evaluation system did not evaluate personal performance fairly--marred by cases such as the deliberate setting of low targets, or the awarding of lower evaluations despite achieving targets--is seen to have formed the backdrop against this change in policy. In light of the prolonged downturn in the performance of the company itself, if this pioneering change to a new evaluation method is successful as an even more effective version of performance-based compensation, there is ample possibility that this system will be adopted at other companies. Fujitsu's "performance" on this matter will be followed up with keen interest.