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Japan's Hitachi To Ditch Seniority Based Pay For Merit Based Pay

Japan's Hitachi To Ditch Seniority Based Pay For Merit Based Pay
One of the most famous practices of corporate Japan, seniority based pay, which is still followed by a number of the largest corporate of the country, is to be scrapped with  by Japan’s Hitachi Ltd.
According to analysts, this move by the company which has been historically better known as a hardware manufacturer, is a part of the strategy of the company to transform into a service based business conglomerate. It also reflects the realization that the old school human resource practices that are followed by many Japanese firms are proving to be impractical in the modern day and age of business.
It is also important for the 110-year old conglomerate to aligning payments for its employees in Japan with those in its overseas operations. Following the merger of the company with ABB Ltd’s power grid business this month in a deal worth $7 billion, the number of employees overseas for Hitachi is more than half of its 310,000 global workforce.
As the first step to do away with seniority based pay, Hitachi will first draw out job descriptions for its domestic workforce prior to using those criteria to make performance assessments which would eventually determine pays.
The conglomerate’s Chairman Hiroaki Nakanishi said in an interview that at a time when the factory floor was the primary training ground and new recruits were taught to manufacture TVs, displays and chips right from scratch, the system of seniority based payments made sense.
“That model no longer works,” he said. After the 2008 global economic crisis, the company had moved away from manufacturing the majority of its hardware-device and currently Hitachi is more focused on digital businesses associated to with infrastructure and related fields.  
This change of business focus demand generation of new business ideas and innovation by employees. 
While a system of merit pay for some employees have been adopted by Japanese firms including Hitachi, labor experts say that most still give priority to seniority-based pay.
“This is half a step forward for Japan embracing merit pay,” said Hajime Ohta, a professor of organization studies at Doshisha University professor. The full adoption of talent based pay has been hampered by the lack of clear job roles.
The company expects to find “a considerable number of people in mismatching positions”, said Hidenobu Nakahata, Hitachi’s chief human resources officer.
Another issue in Japan can be low labor mobility. But reshuffling without layoffs without layoffs will bee possible because of Hitachi’s 150,000-strong job pool in Japan, Nakahata said.
Similar pay plans are also being contemplated by other Japanese firms. For example, Fujitsu Ltd has said that job descriptions will be introduced by it soon.
However, adopting a system of relating pay to job descriptions for blue-collar workers can result in such employees getting stuck in a specific process though most can perform a wide range of tasks which is why many manufacturer in Japan are reluctant to adopt this pay policy, said Keiichiro Hamaguchi, research director general at the Japan Institute for Labour Policy and Training.
 “Tech companies like Hitachi have been frontrunners in this because the manufacturing part of their business has already been sold or gone to contractors,” he said. “But do Japanese automakers really want to introduce a system similar to General Motors or Chrysler for factory workers?”

Christopher J. Mitchell

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