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For decades, corporate hiring practices in Japan primarily consisted of large, established Japanese companies recruiting graduates directly from colleges and universities. These Japanese companies would offer graduates lifetime employment within a rigid seniority system and chain of command. Salaries and benefits, such as health and retirement, were fixed by schedule and paid regularly regardless of performance. Recently, as Japans economy has slumped through a ten year recession, such human resource practices have come under increased scrutiny, and many Japanese companies now view the system as more of a burden than an asset.

Although change is generally very slow in Japan, some Japanese companies today have been forced to rethink their insular human resource practices. Conventions of lifetime employment and seniority, as well as other related employment traditions, have hardly disappeared in Japan, but the number of mid-career shifts and companies offering performance-based pay has grown. Foreign companies attempting to build a successful and stable employee base in Japan and seeking to staff their Japanese operations should pay close attention to these new developments.

Performance-Based Pay

Historically, compensation in Japan has been based on age and seniority rather than performance or position. Older employees received higher compensation and would typically also have more responsibility. Regularly scheduled bonuses were also a part of this compensation system. Although bonus amounts fluctuated with company profits, bonuses were not usually tied to stock prices and could generally be counted on. As individuals rose within the ranks of the company, greater seniority would be associated with larger bonuses. Although these practices continue and the overwhelming number of Japanese companies still adhere to them, there have been numerous changes in Japans system of compensation.

The tough economic realities in Japan today have forced Japanese firms to change the way they compensate their employees. Numerous Japanese companies have found that they simply cannot afford to keep all their employees on the payroll, especially highly compensated employees in their 40s and 50s. As a result, some Japanese companies are resorting to utilizing lateral hiring for special tasks, hiring younger workers to replace older employees who have been downsized, and paying existing and new employees based on performance and experience.

Some senior corporate executives, however, still believe that faster action in streamlining and downsizing will destabilize Japan, hurt the ability of companies to compete abroad, and otherwise damage Japans companies and its economy. Corporate Japan is attempting to execute a balancing act to deal with the economic problems it now faces.

For example, toward the end of 1998, Nikko Securities carried out research on customer satisfaction. Internally, Nikko used the results to rate the performance of more than 100 branch managers with regard to allocating year-end bonuses. In addition, a number of branches have been restructured to assign profit goals and focus on building customer trust. Last spring, Daiwa Securities, Co., one of the largest brokerage houses in Japan, began changing the manner in which it compensates its employees. A merit system is being introduced, and Daiwa plans to discard the seniority system through corporate restructuring. The companys retirement system is simultaneously being changed from a seniority system to a merit-based system.

Electrical giant Matsushita Electric Industrial also acknowledges that it must cut down on the number of its employees and change its traditional ways. Matsushita plans to offer pay options to employeesincluding new onesthat are more in line with free market labor practices elsewhere in the world. The pace of change is very slow, but pay for performance is on the move in Japan.

Lifetime Employment

Until recently, Japanese companies, especially larger, well-established ones, have followed a lifetime employment system whereby newly hired employees implicitly agree to a lifetime working arrangement. While this is not a formal contract, the pervasiveness of the system has led courts to take this practice into account when deciding employment cases. The system would accommodate poor performing employees by shifting them to easier jobs with lower salaries but enhanced titles, either in the same company or in a subsidiary or affiliate.

Today, the largest Japanese companies are beginning to examine techniques used by U.S. and European companies to deal with such human resources issues. Many companies hope to utilize the merits of the Western human resources system while preserving the best qualities of their own system. Some Japanese companies have begun to replace a portion of employees in their 40s and 50s with younger, less expensive (and less experienced) employees or with independent contractors. Now, it is not unusual that when profits plunge -- at least in some of the larger companies -- employees will be laid off.

New training courses and technical schools are targeting existing employees, rather than just those who will become new employees for the first time. For example, Kameido Technical College, a vocational school in eastern Tokyo, (one of 18 such technical schools in Tokyo) provides training to help employees at Japanese companies retool and learn new skills to get new jobs. There are similar training centers elsewhere in Japan.

Fringe benefits are increasingly under review in order to reduce costs. Some of the more paternalistic companies such as Matsushita Electric Industrial Co., which historically provided dormitories for employees, are now cutting back, changing or eliminating such practices in favor of more traditional, free-market housing options.

While Toyota recently decided against changing its traditional employment practices for the moment, Bridgestone, one of the largest tire companies in the world, has chosen to change its longstanding system. Bridgestone is cutting its staff as needed to deal with lower profits and other changes. NEC Corp., the giant electronics company, also plans to cut its staff by approximately 15,000 jobs over the next three years, and Sony Corp. also has plans to downsize. There have been and will be some adverse consequences of such actions; for example, older employees who believe that they were promised lifetime employment as salarymen for grinding, nonstop work when they began their careers years ago will rise in protest.

Women in the Workplace

In traditional Japan, women did not receive many opportunities, economic or otherwise. Although women did hold power in the privacy of the home, this did not extend to the outside world.

Today, women in Japan account for only 8.2 percent of corporate managers, while in the United States that figure is almost 43 percent; in the United Kingdom, more than 33 percent; and in Germany, more than 26 percent. In short, Japan is far behind the rest of the industrialized world with respect to the role of women in government, business and management. Japan remains a very traditional, closed and paternalistic society, despite the many legal (although not enforced) rights -- including educational opportunities -- accorded women in Japan after 1945.

In recognition of the need to change this situation, 13 years ago Japan passed a voluntary equal opportunity law applicable to women and revised its Labor Standard Law for equal treatment of women in the workplace. This is a fairly short period of time within which to try to change centuries of practice. Even though there are now many more women in the workforce and real progress is being made, Japan still faces a great challenge in according women equal opportunities. Discrimination remains the rule rather than the exception. It is not uncommon, for example, for young Japanese women to go abroad, often to the United States, for university training and later decide either to stay because of better treatment and better economic opportunities, or to return to Japan and work for a foreign company.

The current recession in Japan is forcing change more quickly than would otherwise be the case. The Research Institute on the National Economy recently released information showing that providing Japanese women more economic opportunity in Japan would greatly benefit the Japanese economy. Specifically, it estimated that the rate of Japans gross domestic product would grow by up to fourtenths of one percenta significant figure in such macroeconomic calculationsin the next 10 years if more women and seniors were to be employed. The government is attempting to encourage opportunities for women in business and is developing plans for learning sessions nationwide to ensure that businesses and management officials are aware of the equal opportunity law, as well as the business benefits that women bring to the workforce.

There is some visible evidence of these changes. For example, Nippon Life Insurance Co. (known popularly as Nissei) now calls female salespersons partners, rather than Nissei Ladies, as was the practice in the past. The Tokyo Chamber of Commerce and Industry dropped the label women from the title of a seminar on new recruits that the company held in April this year. The labor law also recognizes the work needs of women (for example, mothers avoiding night work and other conditions that are especially detrimental to childcare). Nevertheless, the law is still relatively new, and such changes are just beginning.

In a country where change is slow, perhaps the most obvious progress women have made in the Japanese workplace is as employees of foreign companies in Japan. U.S. and other foreign companies operating in Japan are providing real opportunities for Japanese women in the job market.

Recruiting in Japan

Traditionally, Japanese companies recruited from colleges and universities each year and then provided in-house, on-the-job training throughout an employees career. A companys relationships with colleges and universities was built up over the years, and company employees maintained close ties with their alma mater and pushed hard to recruit its students each year. This recruiting technique was crucial for large companies with more than 100 employees. Smaller companies used the same techniques, but often experienced less success.

With Japans difficult economic times now almost a decade old (but with some positive indicators surfacing this year), several smaller companies and some large ones are looking to other means of recruiting. Some of these new methods include using recruiting agencies, lateral hires, temporary employees, etc. Not surprisingly, foreign companies have had the most difficult time, and college and university recruiting very seldom worked for these organizations. These foreign companies have been forced to rely heavily on other recruiting and hiring methods, using temporary employees, poaching employees from other companies (frowned upon by Japanese companies), and hiring Japanese returnees from abroad, and where justified, expatriates. This was, and still is, accomplished outside normal and traditional Japanese recruiting channels using word of mouth, recruiting agencies and advertisements often both in English and in Japanese.

Japanese custom and law have not eased this transition. For example, Japan limits the time temporary employees can be employed by any one employer, usually to one year. Also, lateral recruiting and hiring are not popular in Japan and usually carry a stigma. All alternative employment methods have been a struggle for Japanese companies as well as foreign companies. Yet, more companies are experimenting with these and other new employment methods as a way of coping with the difficult situation.

There is an increase in mid-career hiring, lateral hiring from other Japanese companies, outsourcing for special skills, as well as increased use of temporary employees and freeters, (persons who juggle outside assignments). Very few Japanese companies use recruiting firms, but almost all foreign companies do.

The Japanese themselves are developing more flexible attitudes about how to obtain employment. This change in attitude is necessitated by unemployment, the lack of jobs for new graduates, and downsizing. Some Japanese are finding that independent contracting and other methods of creating a career may be necessary and even desirable.

Some students are staying in school longer, finding that they will not obtain employment if they leave in the normal cycle. Others are returning home to old-fashioned jobs such as farming, which they went to school to avoid. Some recent graduates have given up their dream of becoming salarymen and have taken temporary jobs, including assignments that, while limited in length, could develop into something more permanent if they perform well and show initiative.

Changing Expectations

As the economy continues to stagnate, and growing global competition forces companies to downsize, traditional human resource practices that once formed the core of Japanese corporate life must now be superseded, at least in some cases, by more competitive recruitment and human resource methods. While conventions such as lifetime employment and seniority are still the norm for the majority of Japanese companies, the number of mid-career shifts and companies switching to performance-based compensation is growing. In addition, foreign companies should pay close attention to the changing expectations of Japanese employees so that they may build a successful team of employees and a successful business in Japan.

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