A Survey of New Developments

in Wage System Reforms and the Wage Policies of Labor Unions




1. Objectives of Survey

    Japanese enterprises are re-examining wage and human resources administration systems in response to developments in the global economy. In regard to wages, revisions in conventional job rate systems and an increasing percentage of performance pay are observed, and an annual salary system has also recently been introduced as an option. Rengo (the Japan Trade Union Confederation) has also initiated efforts to originate an individual wage increase method.
   This survey aims to reveal the status of wage reforms in Japan in conjunction with an examination of new wage policies for labor unions.

2. Method of Survey

    The survey was conducted by questionnaire to 1,096 labor unions affiliated with Rengo all of whom had been included in Rengo's compilation of wage hike statistics. The questionnaire was addressed to the chief secretary level of each independent union via 30 industry-specific unions and returned directly to Rengo from late February to early March 1998. There were 716 responses yielding a response rate of 65.3%.

3. Survey Findings Overview

1. Current Status and Direction of Wage Increase Policies
 Major Corporations are Leading in the Introduction of Individual Wage Increase Method.
   The average wage increase formula is the mainstream method of current wage increase negotiation practices, accounting for 53% of the total, followed by combinations of average and individual wage increase methods, and by the individual wage increase method, both of which account for 21% of the total respectively. If the combination method can be regarded as a transitional form moving toward the individual wage increase method, then, in this broader sense, the percentage of those using the individual wage increase method reaches 42%. Thus the individual wage increase method can be seen to be growing to become a major wage hike negotiation method with almost as many adherents as the average wage increase method. This shift to the individual wage increase method has been led mainly by major corporations.
   The individual wage increase method, as interpreted in its broader sense, is projected to grow in the future to reach 80% of all types, if 44% using the individual wage increase method and 36% using the combined average and individual wage increase method are added up; while the average wage increase method will remain at 19% of total. It seems that the changeover from the average to the individual wage increase method will become a well-established fact soon.

  Automotive and Electric Machinery Industries Exert a Strong Influence on the Spring Labor Offensive.
   Two big industries, namely the automotive-related industry and electric machinery industry have exerted strong influences on labor-management negotiations during the spring labor offensives. This tendency intensifies for labor unions in bigger corporations. Industry-wise, while the automotive-related and electric machinery industries are setting a reference level of wage for a large group of enterprises, steel, food, communications, and non-manufacturing industries keep a distance from the automotive-related and electric machinery industries and determine their wage level based on their own standards. Moreover, the automotive-related and electric machinery industries do not have much influence on each other, as both put emphasis on self-determination by industry.

2. Current Status and Direction of Bonus
 Approximately 60% Use an 'Equivalent Number of Months' Formula as Their Bonus Hike Negotiation Method.
   The average bonus in 1997 was the equivalent of 4.9 months' wages, and the number of months increases with bigger corporations. As for the bonus hike negotiation method adopted by labor unions, a 'number of months' formula accounts for about 60%, followed by a 'amount' formula for 30% and 10% use a 'number of months + fixed amount' formula. The 'number of months + fixed amount' formula tends to be employed by labor unions in larger enterprises. And labor unions opting for an annual agreement (summer and winter bonus) method tend to adopt the 'number of months + fixed amount' formula. In relation to the forms of spring offensive, more 'amount' formulae are employed by labor unions opting for enterprise-specific offensives, while more 'number of months + fixed amount' formulae are used by labor unions opting for an integrated industry-specific offensive.   An integrated industry-specific offensive is the mainstay system in the spring offensive, accounting for over 70% of the total, and enterprise-specific independent unions addressing issues alone remain below 30%. By company size, labor unions of enterprises with less than 1,000 employee concentrate on integrated industry-specific offensives, while those in enterprises with 1,000 or more employees are fairly divided between integrated industry-specific offensives and enterprise-specific offensives.

A Living Wage Makes up 4.1 Months Worth of the Bonus.
   Many labor unions maintain that a living wage portion in the bonus should be secured in one way or another, as shown in the answers to the question of whether a living wage portion which would be consistently paid regardless of an enterprise's performance as a part of bonus should be secured or not: 87% answered, yes, it should be secured, and 12% answered, no, it need not be secured. Labor unions of small-sized enterprises tend to give more no answers. The living wage portion recommended by those labor unions answering yes to the question averaged 4.1 months. This shows that they believe a significant part of the total bonus should be allocated as a sustaining living wage.
   With respect to the wage settlement factor of bonus, many labor unions (58%), regardless of enterprise size or business type, consider that the portion based on ability or performance should be expanded (this includes both answers supporting general expansion and some expansion). Labor unions are now heading toward accepting the expansion of wage differentials among individuals in the bonus.

3. Wage and Human Resources Management Systems and Wage Policies
 Ability and Assignment Factors are More Clearly Emphasized in Larger Corporations.
   A typical structure of basic wages based on current levels is represented by the following percentage distribution: 51% personal attributes, 29% ability factors, 13% assignment factors, and 7% others. This structure varies dependent on the size of the corporation, and the weight of personal attributes tend to be less and those of ability and assignment factors tend to be more in larger size corporations. It also changes depending on the characteristics of the corporations. But generally, the component ratio of personal attributes remains stable regardless of differences in corporate characteristics, while percentages of both assignment and ability factors are subject to fluctuation.

  Ability for the General Staff and Performance for the Managerial Staff are Required Determinants in Wage Decisions.
   Wage determination factors regarded to be of importance in the future by labor unions were analyzed by the following three job types: general staff in operations, undergraduate degreed general staff in administration and engineering jobs, and managerial staff. First, regardless of job description, seniority-based criteria are seen to be becoming less important, while performance and ability factors are becoming more significant, and assignment factor are projected to stay in the middle of the other two determinants. Such changes in wage determination factors lie behind the aforementioned shift in wage profiles toward the dominance of the decreasing type. Moreover, these shifts of emphasis differ depending on job description: general staff in operations is most inclined to maintain a status-quo, and managerial staff sees the most dramatic changes. As for performance and ability factors which are to be focused on in any type of job, it is distinctive that ability is more emphasized than performance for general staff engaging in operations, administration and engineering jobs, while these two factors switch each other in position at the managerial level.

Most Unionist Incline to Accept Wage Differentials.
   In the employment aspect of future wage policies of labor unions, those who advocate secured lifetime employment in the same company (35%) and those who advocate that within the enterprise-affiliated company groups (37%) are almost exactly balanced.
   In regard to the wage system, those who believe in a single wage structure which requires the application of the same wage system to all employees in the same corporation (40%), and those who pursue multiple-track wage systems which accommodate differences among business fields or job types (40%) are in perfect balance.
   As for wage differentials, the inclination to accept wage differentials among unionists in an enterprise is predominant (74%). Also, those who deem that inter-enterprise differentials in the same industry are unavoidable (50%) exceed those who claim such differentials should be rectified (34%), while in terms of inter-industry differentials, those who support correcting (41%) and those who tolerate the differentials (42%) are balanced.

4) Current Status and Challenges of Retirement Payment Policies
 The Combined Use of Corporate Pension Annuity Systems and Lump Sum Retirement Payment Methods is Predominant.
   In retirement payment systems, enterprises which adopt a combination of corporate pension annuity systems and lump sum retirement payment systems have already become the norm (76%) whereas those with lump sum retirement payments only are now a minority (21%). This tendency intensifies as the corporate size gets larger.
   'The base pay x (times) payment percentage' formula is generally (71%) used as the most popular computation method for retirement payments. This method, however, is deeply tinged by considerations of seniority, and presents many problems in an environment of aging population. Because of this, the remaining 30% of corporations opt for new methods that curb the influence of base pay using the following types of computation formulae: 12% have adopted a point method, 10% have a fixed amount determined by a years of service method, and 5% employ a separate table method.

  A Method to Pay Retirement Allowance in Advance by Including It in Monthly Salaries is an Issue to be Examined in the Future.
   Labor unions with the most popular formula of 'the base pay x payment percentage', which represent about 70% of the total, answer that reform is required. The specifics of reforms indicated in their answers are classified as follows: the largest number of unions responded that re-examination of the payment percentage multiplier is required (50%), followed by the necessity of some revision in the inclusion ratios of wage increases to base pay computations (18%), and a recommendation to change to a point method (18%). It is notable that labor unions at bigger corporations tend to maintain more negative policies toward such retirement payment reforms.
   A method to pay retirement allowance in advance by including it to monthly salaries is being discussed as a part of retirement payment reforms, but almost none of those who responded indicated that they wanted to introduce this type of system. However, 40% of respondents indicated that they wanted to consider such a switch as a future issue, so it is safe to say that there is significant momentum among labor unions to debate the inclusion of retirement payments in wages. Moreover, it is projected that type of system will draw increasing interest as the aging problem gets more severe, especially considering the fact that labor unions with more seniority-based wage profiles tend to be more positive towards the system.

5) Wages for Older People
 Wage Curves Change at Age 53.4.
   The current wage profile for older workers moving toward retirement age (age 60) generally evinces a change in the shape of the curve at the age 53.4, due to the fact that increases in the upward linear type of wage curve remain limited to 7%. The increasing-but-slowing type, in which the rising pace slows down from a certain age is most common accounting for 42% of the total, this followed by the leveling-off type profile in which wage levels reach a plateau at a certain age (17%), and the going-down-then-up type which experiences rises again after going down (16%), and finally the gradually decreasing type in which wages go down gradually (13%).
   Labor unions advocate a policy of reforming the system by substantially rectifying such wage profiles as the gradually decreasing type, the going-down-then-up type, and the going-down-then-leveling-off type, all of which allow wage decreases from a certain age, and then by replacing them primarily with the leveling-off type (17% at present and projected to be 28% in the future), accompanied by a slight increase both in the upward linear type (7% and 12% respectively) and the increasing-but-slowing type (42% and 47% respectively). Future plans set the projected age for these changes to take place at 53.6, almost the same age as in current circumstances. More wage profiles going down at a certain age tend to be adopted as corporate size gets larger, while smaller corporations tend to opt for wage profiles with continuously rising curves.

  Fifty-five Percent of Unions Have an Employment System after the Retirement Age of 60.
   Fifty-five percent of all enterprises (labor unions) have an employment system after the retirement age of 60, and as a type of employment, non-full-time employment, i.e. part-timers, prevails with 84%. In contrast, those enterprises providing both full-time and non-full-time employment are few (8%), and those providing full-time employment to all are rare (3%).
   Only a small number of labor unions support a wage profile that continues to rise (upward linear or increasing-but-slowing types) after retirement age for those employees who have an extended term of employment. Labor unions believe roughly two types of wage profiles should be applied: the leveling-off type (26%) and the going-down type (61%). Moreover, among the dominant going-down types, the going-down-then-up type is supported by the largest number of labor unions at 31%, with the going-down-then-leveling-off (17%) and gradually decreasing (14%) types following.