Performance-related reward systems (PRRS) in Japan: practices and preferences in Nordic subsidiaries

Abstract

An increasing number of companies in Japan have implemented performance-related reward systems (PRRS) due to the demerits in seniority-based reward systems, economic slowdown, increasing global competition, and an aging workforce. This study focuses on reward systems and preferences in foreign subsidiaries in Japan, an area that has been overlooked. In contrast to the convergence view that best practices are universally applicable, interviews conducted in 60 Nordic subsidiaries show that PRRS have faced considerable resistance, while seniority-based reward systems have proved robust, especially in older subsidiaries. Implications for practice and suggestions for future studies are provided.

Keywords:

• foreign subsidiary
• Japan
• performance-related reward systems
• reward preferences
• seniority-based reward systems

Notes

1. In seniority-based systems used in Japanese companies, base pay is divided into skill-based and age-based pay; the former increases with skill development and the latter automatically with tenure based on accumulated firm-specific knowledge and abilities (Morishima 1995). Increases in the base pay are linked with tenure until employees reach the age of 50 at larger and 40 at smaller companies. Although the base pay for all employees increases in the long run, differences in it are related to accumulated promotions. As employees get older and start to obtain higher positions, the level of skills and qualifications obtained starts to gain more influence on pay and promotion. The shift in promotion is gradual, but occurs often after 10–15 years of work in the same company. A biannual bonus (summer and winter), equal to 5 or 6 months of salary, is normally paid to all employees, and allowances for housing, dependents, and commuting are provided to maintain employees' standard of living.

2. Despite the lack of comparative research on reward practices and preferences in Japan and Nordic countries, studies based on various cultural typologies (Fischer and Smith 2003; Chiang 2005) and cultural self-representation theory (Erez and Earley 1993) suggest that PRRS are more used and preferred in Nordic countries.