Publications

For decades, employment in Japan primarily meant large, established Japanese companies recruiting graduates directly from their colleges and universities. Such Japanese companies would then offer these graduates lifetime employment within a rigid seniority system and chain of command. Salaries and benefits, such as retirement and health, were fixed by schedule and paid regularly regardless of performance. However, at the beginning of the decade, as Japans economy began to slow down and go into recession, such human resource practices seemed to be a burden rather than a plus.

While change is very slow in Japan some Japanese companies are being forced to rethink their insular human resource practices. The conventions of lifetime employment and seniority, and the other related employment traditions, have hardly disappeared in Japan, but the number of mid-career shifts and companies switching to performance based pay is growing. Foreign companies attempting to build a successful and stable employee base in Japan and seeking to staff Japanese operations should pay close attention to these new developments.

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 fact that this has been so pervasive causes courts to take this practice into account when deciding employment cases. The system even accommodated poor performing employees by shifting them to easier jobs with lower salaried but enhanced titles, either in the same company or in a subsidiary.

Today, the largest Japanese companies are beginning to examine techniques used by U.S. and European companies to deal with such people issues, while insisting on 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 largest companies employees will be laid off. Fringe benefits are increasingly under review and revision in order to reduce costs and change practices.

Some of the more paternalistic companies such as Matsushita Electric Industrial Co., which in the past, like many large Japanese companies, have provided dormitories for employees, are now cutting back, changing or eliminating such practices in favor of more traditional, free-market housing options.

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 the 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.

While the mighty Toyota has recently decided against changing its traditional employment practices for the moment, Bridgestone, one of the largest tire companies in the world, has not. This company is cutting its staff as needed to deal with lower profits and other changes. NEC Corp., the giant electronics company, plans to cut 15,000 jobs over the next three years, as does Sony Corp.

There have been and will be some adverse consequences of such actions for example, among older employees who believed that they had been promised lifetime employment as salarymen for grinding, nonstop work when they began their careers years ago. In spite of these changes, the overwhelming number of Japanese companies still provide lifetime employment and stick by other traditional employment practices.

Pay for Performance

For decades, pay in Japan has been based on age and seniority. Older employees received greater pay and, usually, had more responsibility. Bonuses were part of this system. Although these fluctuated with company profits, bonuses were not usually tied to stock prices and, generally, could be counted on. With greater seniority went larger bonuses. While these practices continue and the overwhelming number of Japanese companies still adhere to them, there are changes.

These are being forced on Japanese firms by the tough economic realities in Japan today. There are Japanese companies that simply cannot afford to keep all their employees on payroll, especially high-paid employees in their 40s and 50s.

As a result, some Japanese companies are resorting to lateral hires for special tasks, and hiring younger workers to replace older employees who have been downsized, and are 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. 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, but also used the results to rate the performance of more than 100 branch managers with regard to allocating year-end bonuses. In addition, some of the branches have been restructured to assign profit goals and focus on building customer trust. Last spring, Daiwa Securities, Co., one of Japans three largest brokerage houses, began changing the way it pays its employees. A merit system is being introduced whereby through corporate restructuring, the seniority system will be discarded. The companys retirement system is also being changed from a seniority system to a merit-based system.

Electrical giant Matsushita knows that it must cut down on the number of its employees, change its traditional ways and offer pay options to employees including new ones that are more in line with the 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.

Women in the Workplace

In traditional Japan, women did not receive many opportunities economic or otherwise. While they did hold a special place in the privacy of the home, this did not extend to the outside world, including commerce.

Today women 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 its women in government, business and management. Japan remains a very traditional, closed and paternalistic society, despite the many legal (though unenforced) rights including educational opportunities accorded women in Japan after 1945.

In recognition of the need to change this situation, Japan passed a voluntary equal opportunity law applicable to women 13 years ago and revised its Labor Standard Law for equal treatment of women at work. 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 has a long way to go. 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 then 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 would greatly benefit the Japanese economy. Specifically, it estimated that the rate of Japans gross domestic product would grow by up to four-tenths of one percent a significant figure in such macroeconomic calculations in 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 plans for learning sessions nationwide to ensure that businesses are aware of the equal opportunity law, as well as the business benefits that women bring to the workforce, even at the management levels.

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 law also recognizes the work needs of women (for example, mothers avoiding night work and other conditions that are especially detrimental to child care). Nevertheless, 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 women in the job market.

Recruiting in Japan

Traditionally, Japanese companies recruited from colleges and universities each year, 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 alumni companies maintained close ties with their alma mater and pushed hard to recruit its students each year. This was especially true for larger companies with more than 100 employees. Smaller companies used the same techniques, however, oftentimes with less success while nevertheless subscribing to the practice.

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 include using recruiting agencies, lateral hires, temporary employees, etc. Not surprisingly, foreign companies have had the most difficult time and overall, college and university recruiting very seldom worked for them. These foreign companies have had to rely heavily on other recruiting and hiring methods, using temporary employees, poaching employees from other companies (frowned upon, naturally, by Japans main companies), and hiring Japanese returnee and others 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 made this effort easy. 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 caries a stigma. All alternative employment methods have been a struggle for both small Japanese companies as well as foreign companies. Yet, more companies are experimenting with these and other new employment methods.

There is an increase in mid-career hiring, lateral hiring from other Japanese companies, outsourcing for special skills, as well as the 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 get work, 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 there are no jobs if they leave in the normal cycle. Some are returning home to old-fashioned jobs such as farming, which they went to school to avoid. Some, not atypical 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 are now being superseded, at least in some cases, by more competitive recruitment and human resource methods. While such conventions as lifetime employment and seniority are still the norm for the majority of Japan Inc., 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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