Japanese work scramble disrupts traditional hiring

Companies shift from seniority-based compensation to a more meritocratic system of salary

Reuters December 27, 2018
Employees of Mercari Inc. Takashi Murakami and Ayano Okuda pose for a photograph at the company office in Tokyo, Japan, December 5, 2018. Photo: Reuters

TOKYO, JAPAN: It's a rite of spring in Japan: Major corporations hire fresh university graduates en masse every April, starting them all at the same salary with assurances of rising pay and lifetime employment. But lately, some companies, including Rakuten, SoftBank and Line Corp, are breaking with that tradition, signing up new employees with coveted technical skills months earlier - and paying them more than other new

As competition for workers grows in Japan's shrinking labour
pool, traditional seniority and group dynamics are giving ground
to the more individualised, merit-based employment system found
in the West. It is a welcome sign for Prime Minister Shinzo Abe's
government and the central bank, which have been pushing for a
more flexible labour market that would boost wages and revive

Takashi Murakami, a 23-year-old producer at Mercari, which developed a popular flea market app, says seniority-based pay and lifetime employment are relics. "I'm grateful that the company seems to value me with pretty good pay," he said. "I already got a pay hike after joining the company, which motivated me to work even harder. Merit-based pay is more fitting to the times." In recent years, Mercari said, it has been hiring college students throughout the year to grab workers with needed skills.

The company even offers jobs to some second-year or third-year
students. Mercari also has a programme called "Mergrads" to provide
internships and training to improve new graduates' skills. And since April, it started offering higher pay to some job candidates with skills in information technology engineering and computer programming, said Ayano Okuda of Mercari, who is in charge of hiring new graduates. She declined to discuss the company's pay scale. "The competition is surely heating up," she said. "We judge each individual's ability and offer them attractive salaries reflecting their skills."

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For decades, Japan's traditional spring hirings underpinned
the economy and provided a clear corporate and social ladder,
grounded in - and reinforcing - the cultural emphasis on loyalty
and conformity.

Under Japan's often choreographed business practices, the Keidanren, the largest business lobby, had a "voluntary"
timetable that many companies followed: Start recruiting new
employees on March 1, begin job interviews with fourth-year
students on June 1 and informally offer jobs on Oct. 1 - six
months before graduation.

Labour ministry data show the entry-level salary stands at
about 200,000 yen ($1,775) a month, compared with roughly 30,000
yen in 1968, or 130,000 yen in today's money.

Demand for workers is stronger now than it has been in
decades; there are 1.62 jobs available per applicant, nearly a
44-year high. In response, the Keidanren decided to ditch its timetable guidelines by spring 2021, meaning member companies are
expected to follow them until then.

But more companies, particularly in "new economy" industries
such as technology and e-commerce, have adopted much more
flexible hiring practices, including offering select employees
higher pay.

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Internet advertising firm CyberAgent scrapped its uniform starting pay scale in April. Now it offers annual starting salaries ranging from 4.5 million yen ($40,000) to 7.2 million yen ($64,000) or more for IT engineers, who account for about 40 percent of its
5,000-person workforce. "We face stiff competition in securing able workers," said Yuko Ishida of CyberAgent.

That means some young, incoming employees are paid more than their older co-workers. CyberAgent pays exclusively based on
ability without taking seniority into account, Ishida said. "Our competitors are also offering better salaries for high-quality workers, so we believe we can attract able workers by offering appropriate salaries," she said.

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Although some say Japan is long overdue for a shift toward a
more flexible, merit-based employment system, it could upset
long-standing social order. "If it spreads throughout corporate Japan, it would mean a collapse of Japan's employment system," said Hisashi Yamada, a senior economist at Japan Research Institute and an expert on labour issues. "That would cause a disparity among workers, causing uneven distribution of work and loss of motivation among those who feel left behind," he said. To sustain long-term growth, he said, companies will need to balance maintaining "in-house order" with rewarding performance and valued skills, while the government must step up efforts to make Japan's job market more flexible. ($1 = 112.4000 yen)

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