Japan Insight: Merit to replace seniority as compensation benchmark
Meritocracy vs. seniority has long been a legal battleground in Japan as the country tries improve compensation models in order to compete globally. Now it seems that compensation reform is coming to one of Japan’s largest employers thanks to a new pay scheme at the Japan Post Group. JPG will phase out seniority-based compensation and put in place the new salary system as early as April 2014.
“Under the new system, the amount of performance-linked pay will be decided based on five-degree performance assessments of each employee. An average postman may see his or her performance pay rise by up to 13 percent or fall by up to 6 percent.
Performance-linked compensation will be paid on top of seniority-based salaries, which will be reduced by 20 percent from present levels.
Performance assessments will also affect retirement allowances.
The Japan Postal Group Union is scheduled to discuss the proposed new salary system at a national convention set for June 13-15 in Tokyo.
Reaching an agreement on the new payment system could be a bumpy road since the new system, which includes a new performance assessment plan, may lead to wider salary gaps among employees.
A performance-linked pay system is not suitable for public services, a labor union official said, citing the recently revised Postal Privatization Law that obliges the group to offer equal postal, banking and insurance services nationwide.”
Will this attitude on meritocracy cross over the law firms and other companies? Many law firms (especially the big ones) have historically had lock step compensation for associates, with a little more flexibility in the partner ranks. Edge consulting has a short discussion of law firm compensation and the decline of lock step pay packages:
“Many partners assume that most large firms operate on a highly objective, pure formulaic system – what is often labeled “eat what you kill.” By our observation, however, only about 10% of large firms use a strict formula. Roughly one-third of firms have a system that is subjectively determined by a compensation committee based on consideration of data, interviews with partners, recommendations by firm leaders and similar inputs. We estimate that only about 5% of firms use a pure lockstep system where profits are evenly divided among partners or seniority is the sole determinant of compensation, but another 10% have a modified lockstep system where the seniority-based rise up the compensation ladder may be affected by performance factors. The remainder (about 40%) is some combination of two or more of these factors, most frequently an objective system that can be modified by subjective input.”
Thoughts?
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