Some Japan Firms Reallocating Bonus Funds to Regular Pay

Tokyo, Dec. 10 (Jiji Press)–An increasing number of Japanese companies are reducing performance-linked bonuses and reallocating those funds to regular salaries, aiming to attract talented workers with more stable higher monthly pay. But it is unclear whether the trend will spread further, as it is difficult for companies to cut salaries even if business performance deteriorates once they adopt such a pay system that limits their ability to adjust compensation to fluctuations in earnings. Gaming giant Sega Corp. plans to hike employees’ regular wages by an average of around 10 pct next April. While 4 percentage points of this represent a pay scale increase, the remaining 6 points come from the portion reallocated from part of the funds that would otherwise have been paid as bonuses. The move raises the starting monthly salary for university graduates from 300,000 yen to 330,000 yen, among the highest in the industry, according to the company. Sega’s 2023 wage revision enabled funds for retirement allowances to be used to increase monthly pay. Receiving retirement allowance funds early is beneficial for employees who plan to change jobs during their careers. Sony Group Corp. will scrap winter bonuses and reallocate those funds to monthly pay and summer bonuses at units including Sony Corp. and a semiconductor subsidiary from fiscal 2026. “We will make competitive offers to job applicants on a monthly salary basis,” a Sony Group public relations official said. In fiscal 2022, toy maker Bandai Co. merged its summer and winter bonuses into one summer bonus, and used part of the bonus money to raise monthly wages. Both Sony Group and Bandai have adopted pay systems in which business performance and individual evaluations are reflected heavily in salaries, boosting the average annual income of their workforce. But a labor affairs official at a major manufacturer said that overhauling a pay scheme is not cost-effective, explaining, “It’s difficult to redesign a complex salary system that incorporates seniority in addition to job function and position.” A senior official of an automotive industry labor union said, “It may look like a substantial wage increase at first glance, but what’s important is sustained wage growth.” “Raising salaries with bonus funds is beneficial for enhancing recruitment of new graduates and stabilizing employees’ livelihoods,” said Takeshi Hioki, a consultant familiar with corporate management. “But if this is introduced while leaving the old remuneration system intact, firms may face difficulties managing fluctuations in business performance and there is a risk that high-achieving employees will lose motivation,” Hioki added. “It may be worth introducing if companies are willing to adopt a performance-based pay system reflecting individual capabilities.” END [Copyright The Jiji Press, Ltd.]