February 17, 2017 3:30 pm JST

Corporate Japan reluctant to reward key employees

Salary should be seen as an investment, not a cost, recruiter says

KEN MORIYASU, Nikkei deputy editor

People walk on a pedestrian crossing in Tokyo. © AP

TOKYO -- Stuck in an outdated seniority-based evaluation system, Japanese companies are reluctant to identify key performers and reward them monetarily. There is a disparity with other Asian economies in this regard and it is expanding.

In Japan, management level salaries are sometimes less than half what is being paid in China, Hong Kong or Singapore, according to a survey by professional recruitment company Hays.

While Japanese workers have traded lower pay for the security of lifetime employment, companies may be failing to grasp a new trend, the survey says.

The 2017 Hays Asia Salary Guide shows that 53% of employees in Japan are actually unsatisfied with their salary. Furthermore, the ratio of Japanese respondents who said salary or benefits would motivate them to move to a new job jumped to 49% in 2017 from 37% in last year's survey.

"It is important for companies to view salaries of highly skilled employees as an investment and not a cost," said Marc Burrage, managing director for Hays Japan. "If in doubt, do the math. Does the cost of replacing senior people, the subsequent downtime and training their replacement, as well as the risk of them going to a competitor outweigh the cost of a pay increase?"

A 10-year tracking of salaries highlights the disparity. A chief information officer of an IT company in China today can command up to $372,000 in annual salary, more than double the $163,000 he or she could get in 2008. A CIO in today's Japan gets a maximum of $220,000 -- less than the $352,000 Japanese companies were paying in 2008. A CIO in Singapore today can earn up to $376,000; one in Hong Kong can expect $332,000.

Hays predicts that Japanese companies will be competing with global rivals in the race for top talent, especially in the fields of autonomous driving, artificial intelligence, data science and the internet of things. "In this race, there are no prizes for second place," Burrage said. "Competitors are aiming for the same talent, and Japan is in danger of being left behind."

Professor Atsushi Osanai of the Waseda Business School in Tokyo offers a different take. "Japanese companies do not raise salaries because they do not need to raise salaries," he said. "Unlike in China, where companies have to increase pay just to retain staff, Japanese employees aren't leaving."

This offers Japanese companies a distinct advantage, which company heads are not taking enough advantage of, Osanai said. "For years, Japan has given up on the cheap mass production of goods and tried to compete with expensive, high-end products," he said. "Maybe it is time for Japan to move back into cheap goods due to its low-cost environment.

"There is a reason why China's Huawei recently opened a research and development center in Japan. It's just cheaper."

The survey did show that Japanese companies are paying more than other Asian competitors for junior roles. A receptionist in Japan can make $44,000 a year; one in China can get $6,170. Their Hong Kong counterparts can earn $23,800, and those in Singapore are likely to see $24,600.

But Burrage said this is a mismatch. Young people, he added, are not looking for more money, at least not as much as they "are looking for ... variety, stimulation in their work and training to learn new skills."

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