After decades of fixed wages, some Japanese companies are raising wages to retain skilled staff

  • Japan average salary of $38,515 in 2020 vs OECD average of $49,165
  • Spring labor talks set tone for rest of economy
  • More and more companies are now turning to performance-based compensation

TOKYO, March 1 (Reuters) – Over the past five years, Yokohama-based Lasertec Corp (6920.T) has delivered what much of Japan Inc hasn’t done in decades: strong increases of salary.

The chip measurement equipment maker has increased salaries by about a third in total since 2016. Employees in its main unit, many of whom are engineers, earn on average just under 14 million yen (121,000 $), more than three times the national average of 4.3. million yen.

Lasertec is among a subset of Japanese companies, often in specialist fields such as technology, where pay is increasingly tied to employee performance and not determined by seniority or fixed base salary. during annual labor negotiations.

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While the “shunto” spring wage negotiations between major manufacturers and unions still hold immense importance for the economy – especially this year – more and more companies are opting for performance-based pay, according to the experts, a shift that speaks to a broader shift that is slowly taking hold in Japan. (For an EXPLAINER on ‘shunto’ talks, click read more)

“For companies like ours, employees are valuable assets, not costs,” said Yutaro Misawa, a senior executive at Lasertec, whose profits have risen nearly fivefold and shares have jumped more than 2,800% in the past few months. last five years.

An attractive salary makes it easier to retain talented engineers specializing in research and development, especially given the labor shortage as Japan’s population shrinks, Misawa said.

But for much of the rest of the world’s third-largest economy, wages remain poor. Thanks to decades of deflation, businesses, like households, tend to hoard cash instead of spending. Japanese companies now have a record $2.8 trillion in cash and deposits.

In dollar terms, the average annual salary was $38,515 in Japan in 2020, well below the OECD average of $49,165 and little changed since the early 1990s.

Higher salaries are essential for the government’s objective of a stable inflation of 2%. Prime Minister Fumio Kishida has called on corporations to raise wages and start a virtuous cycle of spending, as part of his “new capitalism” platform to push for a greater distribution of wealth.

TRAGGLER?

Renewable energy startup Abalance Corporation (3856.T) has been actively hiring mid-career executives over the past three years, raising the average salary in Japan by more than 30%. Its approximately 100 employees in Japan – local and non-Japanese – are paid an average of more than 7 million yen.

“Acquiring talented people from around the world is vital to growing a business,” said Yuichi Kawauchi, senior executive. “If we leave things as they are and fail to show that Japan is an attractive place to work, Japan will fall further behind the rest of the world.”

Granted, performance-related pay means bonuses can be cut in a downturn – an unappealing prospect for Japan’s many workers who value stability. Unions generally seek incremental increases in the base salary, which is permanent.

Most companies are not planning to raise base pay in spring labor negotiations this year, according to Reuters’ latest survey of companies. A slim majority expect to increase total pay, which includes one-time bonuses, according to the survey.

According to analysts, this will not be enough to cope with the recent surges in commodity prices, which are eroding household purchasing power. Read more

CHILDREN’S EDUCATION

For Yamada Consulting Group (4792.T), which helps midsize companies restructure, attractive pay and benefits are needed to prevent staff from being poached, Chairman Keisaku Masuda said.

The consulting company allows staff to work fewer hours to encourage them to raise children.

“We face fierce competition for high-performing workers. We have dramatically increased wages and improved working conditions to avoid headhunting,” Masuda said.

It raised salaries by an average of 19% in 2020 and 5% last year and its average employee now earns 9.2 million yen.

Labor negotiations in Japan will eventually shift from flat base wage increases to more flexible wages that reflect the market value of workers, said Yuya Takada, a researcher at staffing and placement firm Recruit Holdings Co.

Even Toyota Motor Corp (7203.T), itself a longtime leader of the spring labor negotiations, stopped disclosing base salary details, underscoring the gradual decline in the importance of labor negotiations.

Seniority-based pay will be a thing of the past, Recruit’s Takada said.

“It will de-emphasize how management and unions fight for base pay increases in annual rituals.”

($1 = 115.4800 yen)

(This story refiles to correct a typo in the currency conversion in the second paragraph)

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Reporting by Tetsushi Kajimoto; Editing by David Dolan and Muralikumar Anantharaman

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