Connect with us

Hi, what are you looking for?

News

Japan CEOs now more vocal about merit-based pay

A Japan Yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White

AS BUSINESS LEADERS in Japan face greater pressure to raise wages in an inflationary environment, they’re becoming more vocal about the need to pay employees based on merit.

“It’s not necessarily good for people to feel like they’re being compensated because of inflation,” Takahito Tokita, chief executive officer of Fujitsu Ltd., said in a recent interview. “It’s better if we do it because the business is healthy. What we want to do is reward each and every employee who contributes to the growth of our company.”

On one hand, such talk can be seen as a sign of corporate Japan casting aside the remains of a compensation system based on across-the-board rewards and seniority. On the other, it also reflects a degree of hesitancy to raise salaries in knee-jerk reaction to inflation. That’s making it unclear whether rising consumer prices will lead to higher wages.

Even so, Japan is showing signs of emerging from decades of deflation and loose monetary policy. Consumer prices are on the rise, with Tokyo inflation at a 40-year high of 4%. Manufacturers are bracing for tough negotiations with unions during annual spring wage talks. A tight labor market is forcing businesses to raise salaries to attract and retain talent.

Fast Retailing Co., operator of Uniqlo and other fast-fashion brands, announced last week that it will raise annual pay for full-time employees by as much as 40%, joining domestic businesses such as Nippon Life Insurance Co. and Suntory Holdings Ltd. in boosting salaries. The retailer’s wage hike covers workers at its headquarters as well as in stores, and includes new hires. 

Beyond the dramatic headline figure, Fast Retailing made it clear that compensation would be based on “factors such as work performance and results, ability to contribute to the business, ambition and growth.”

“The point of the change is to encourage employees to do the quality work that meets global standards,” Takeshi Okazaki, Fast Retailing’s chief financial officer, said in a briefing. “If you want to ask for a world-class level of work, then you should give a world-class reward.”

The pay hikes also reflect the fact that wages in Japan remain the lowest among Group of Seven nations. Average annual compensation in the country was $39,700 in 2021, according to the Organization for Economic Cooperation and Development. The average among OECD countries was $51,600, while the US had the highest level of $74,700.

Japanese companies are finding themselves caught between a persistent deflationary mindset among consumers — making it harder for them to raise prices for goods and services — and broader inflation and rising energy prices that are fueling demands for them to raise salaries, according to Travis Lundy, Pan-Asia analyst at Quiddity Advisors who publishes on Smartkarma. 

“Pay your workers more, and they’ll go buy more products” was former Prime Minister Yoshihide Suga’s public pet peeve, Mr. Lundy said. “But that didn’t really happen.”

Triggering the wage-price cycle of rising salaries feeding into higher prices, and vice versa, has arguably been Haruhiko Kuroda’s most elusive goal as Bank of Japan governor and architect of a decade-long experiment in ultra-loose monetary policy. Some of the speculation around a shift in inflation and wage expectations is linked to a planned transition to a new central bank chief in the coming months.

Indeed, real wages in Japan fell 3.8% in November, the most since 2014, according to the latest figures released by Japan’s labor ministry earlier this month. Real cash earnings, which reflects income adjusted for inflation, show that businesses aren’t keeping up with recent inflationary trends.

The Japanese Trade Union Confederation, the collective bargaining group known more colloquially as Rengo, has embraced “casting off a deflationary mindset” as one of its core tenets in upcoming wage negotiations. The group has made it clear that it is expecting wages to be increased by 5%, and at least 3% in terms of base pay.

As Japan’s economy grew at a torrid pace in the 1960s and 1970s, Rengo was able to extract concessions from employers by scheduling an annual strike in the spring and banding together with other unions to negotiate beforehand. Now, with declining membership and a shrinking manufacturing base, it remains to be seen whether Rengo or any other union can deliver across-the-board wage hikes that will fuel broader compensation gains, or even inflation.

“I’m not so sure that Japanese consumers are ready to be in consumption mode again,” Mr. Lundy said. “This is just corporate Japan coming up the curve of merit-based pay.”  — Reuters

Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!

Latest

News

REUTERS A landmark lawsuit by the US Justice Department against Alphabet’s Google over its dominance of advertising technology could help rivals and websites that...

News

North Atlantic Treaty Organization/Flickr STOCKHOLM — Swedish and Finnish hopes of quickly joining NATO (North Atlantic Treaty Organization) have run into an obstacle in...

News

Egg vendors arrange their products for sale at a store along Blumentritt in Manila, Jan. 26. Filipinos are grappling with soaring prices of food,...

News

ICC prosecutor authorized to reopen Philippines drug war investigation – BusinessWorld Online ...

News

Photo via freepik The past years saw climate change, defined by World Health Organization (WHO) as “the change in climate in time due to...

News

At Christmastime, monster waves and winds battered the 23-year-old Tubbataha Ranger Station. (Inset photo) Metro Pacific Investments Foundation, Inc. committed to provide an additional...

You May Also Like

News

COVID-19 has had a significant impact on the mental health of Filipinos across different groups all over the archipelago. From frontline workers, parents balancing...

News

REUTERS By Luz Wendy T. Noble, Reporter The country’s foreign exchange buffers slightly increased as of end-October as the value of the central bank’s...

News

BW FILE PHOTO GROSS BORROWINGS by the National Government reached P2.6 trillion as of end-September as it continued to raise funds to respond to...

News

KARASOLAR.COM TENA, Ecuador — Ecuador’s rainforest Achuar people say their ancestors long dreamed of a “fire canoe” or “electric fish” that would let them...

Disclaimer: Respect Investment.com, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2022 Respect Investment. All Rights Reserved.