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Human Resource
Management
Keiichiro HAMAGUCHI
Chapter 3
Section 5
Wage System
and Working Hours
(1) Characteristics of Wage
Systems in Japan
(a) Seniority-based Wage System
• Wages are determined by job and
performance in other countries.
• In Japan, wages are determined by
worker’s attributes (length of service, age).
• Wages remain the same through transfers.
• Japanese blue-collar workers are unique in
their steep wage profiles.
• Seniority-based wage system provides
strong incentive to remain the company.
(2) Wage Structure in Practice
• Actual wage systems are designed to reflect
skills and performances.
• Basic wages consist of 2 types, age-andseniority-based wages and skill-based grade
systems, which have grades and subgrades.
• Workers can automatically be promoted to
higher subgrades.
• Promotion to higher grades are based on jobperformance evaluation.
• However, job-performance evaluation has
evolved to seniority-based evaluation.
• Evaluation of individual’s performance is difficult
in the team-oriented environment.
• Recently, drastic wage reform is required
because of global competition and population
aging.
• Companies have introduced more individual
performance-based wage systems.
• Seniority-based wage system must be modified
to preserve long-term employment practice.
(c) Bonuses
• Bonuses are normally paid twice a year (June
and December).
• Amount of bonuses is normally determined by
collective agreement, not by discretion of
employers.
• But they respond to economic performance.
• Employers may differentiate individual workers’
bonuses based on performance evaluation.
(d) Retirement Allowance
• Amount of retirement allowance is
calculated by multiplying the basic wage at
the retirement by length of service.
• But it can be reduced in case of personal
retirement or disciplinary discharge.
• Retirement allowance has the nature of
deferred wage payment and reward for
meritorious service.
(2) Wage System in US
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Wages are determined by the job, not length of service,
Hourly wage system is applied to blue-collar workers.
Annual salary system is applied to white-collar workers.
Actual wages are determined based on performance and
skills.
• 50% overtime pay for blue-collar workers. (Non-exempt)
• White-collar workers such as executive, administrative
and professional employees and outside salesman are
exempted from overtime pay regulation. (Exempt)
(3) 40 Workweek System and
Overtime Agreement
• Overtime and rest day work are possible if Article 36
agreement (agreement with trade union or majority
representative) is concluded.
• Employer must pay 25% overtime premium.
• There are no statutory limitation on overtime.
• Supreme Court held work rules provided the duty to
overtime, individual consent was not necessary (Hitachi
Ltd. Case).
• Protective regulations on overtime and night work by
women were abolished because of equality.
• There are no restrictions on shop opening hours, which
enables “convenience store” opening 24 hours.
(4) Conclusive Presumption
of Hours Worked
(a) Work Outside the Workplace
• Working hours for outside work (ex.
salesman) is difficult to determine.
• LSL allows the number of hours in the
agreement with majority representative is
regarded as the hours worked (conclusive
presumption).
(b) Discretionary Work Scheme
(Professional Work Type)
• Japan has no “white-collar exemption”
except for managerial or supervisory staff.
• Employers must pay 25% overtime
premium to other white-collar workers.
• 1987 revised LSL introduced conclusive
presumption system for limited white-collar
workers (professional work type
discretionary work scheme).
(c) Discretionary Work Scheme
(Management Work Type)
• Employers demanded that white-collar workers were
exempted from overtime regulation.
• “Service overtime” (undeclared overtime without pay) is
prevalent in Japanese offices.
• Performance-based yearly salary system is impossible
for non-managerial white-collar workers without
discretionary work scheme.
• 1998 revised LSL introduced management planning type
discretionary work scheme.
• New type of white-collar exemption is now under
discussion in the tripartite Labor Policy Council.
• These argument is intertwined with the shift of HRM from
seniority-based to result-oriented.