The Performance-based Salary System and Personnel Management Reforms in Japan

Abstract

The term ‘performance-based salary system’ is at the centre of a hot dispute. Some people are quick to argue that companies should construct a mechanism able to cope with the challenges posed by an ageing workforce while at the same time enabling the organization to agilely adapt to ever-fluctuating market conditions. These proponents further maintain that the performance-based salary as opposed to the traditional seniority-based system indeed serves as one such mechanism, without which it would be very difficult to survive as a business in the face of ever-intensifying global competition. Other people counter that companies should not change the current salary system, which enables long-range planning in human resource development and at the same time fosters fierce competition among employees over skills development. The vague and aggressive overtones of the very term ‘performance-based salary system’ fuel emotion in an already heated debate.1