Trends in Wage Systems

Section 3

Companies are implementing wage system reforms toward performance- or ability-based systems. Regular employees approve the introduction of performance-based systems and wage differences based on evaluation, but they feel some concern as to whether such evaluations would be fair.
When introducing and operating a performance-based wage system, it is important to gain the agreement of employees by setting proper objectives, maintaining transparency and fairness, etc.
Wage differences between regular employees and part-time workers widened throughout the 1990s, even after considering the difference in composition of job types. Dissatisfaction is greater among part-time workers who work more autonomously, suggesting that treatment is inadequate and not consistent with worker performance.
In order to make greater use of non-regular employees, it is important to gain the agreement of employees, in terms of wages, by implementing proper evaluation, treatment and human resources development corresponding to the employees wishes and type of employment.

Trends in Regular Employee Wages
Wage difference by age, position or gender is being narrowed among regular employees, but the variance is increasing among middle-aged and elderly male college graduates. One of the causes is that companies are trying to keep labour costs down by evaluating employees' abilities and performance more strictly, particularly for middle-aged and elderly male college graduates, in the increase of aged or high-educated employees whose wages are relatively high.

Current Status of the Wage System Reform and Challenges
Analysis of corporate wage systems shows that there is a shift toward performance- or ability-based systems. More than 30% of the companies have increased the weighting of achievements and performance as wage determination factors, when compared to five years ago (Figure 40). Additionally, more than 70% of the companies plan to change their wage systems. Contents of the changes indicate that many companies are considering to change their wage systems to performance-based ones, in which the individual's performance is reflected in bonuses and basic wages, in addition to ability-based wage and promotion systems (Table 41).
Regular employees approve the introduction of a performance-based wage system and wage difference resulting from it, but they feel some concern as to whether the evaluation would be fair.
There is a risk that, depending on how objectives are set and implemented, the performance-based wage system may have a negative impact on employees' motivation for working and human resources development. For this system to function effectively, it is important to gain the agreement of employees by setting proper objectives, maintaining transparency and fairness, securing opportunities for human resources development, etc. However, employers' efforts appear to be insufficient with respect to disclosure of performance evaluation systems or notification of the results to the employees, and training of evaluators.

Trends in and Background to Wage Differences between Non-Regular and Regular Employees
Throughout the 1990s, wage differences between non-regular and regular employees widened while the percentage of part-time workers continued to rise. In terms of an hourly wage, based on an annual wage, including bonuses, the relative wage of female non-regular employees in 2001 was 54.3 as compared to 100 for regular employees. In order to identify the factors behind this, a study was conducted on female workers focusing on (1) increasing length of service and wage curve; (2) differences and changes in the composition of job types, and (3) employment adjustment and labour costs other than wages.

(1)	The wage difference is widening, even after adjustment of differences in attributes such as industry, company size, age and length of service. While the length of service of part-time workers is increasing, it appears that the evaluation of length of service has not changed when determining wages.
(2)	In the late 1990s, changes in the composition of job types had a large impact on the widening wage gap. Throughout the 1990s, wage differences appear to have widened even after allowing for the difference in composition of job types (Table 42).
(3)	One out of every three female part-time workers with a spouse limited their working hours. This is one of the factors behind the wage difference with regular workers. The difference in total labour cost, including social insurance, etc., is about five percentage points higher than for the wage difference.

Dissatisfaction with respect to wages is greater among part-time workers who work more autonomously, suggesting that treatment may be inadequate and not consistent with the worker's performance. If disparity in labour conditions between regular and non-regular employees continues to widen, it may lead to a decline in the non-regular employees' motivation for working or self-education, and may also restrict the further utilization of non-regular employees in the future.
For these reasons, it is necessary to implement a proper evaluation system for non-regular employees that reflects their performance and improves their treatment. It should be based on clarification of the division of work and responsibility between regular and non-regular employees, and the abilities required for the job.
Non-regular employees are satisfied with their wages where employers give proper treatment and human resources development. Therefore, in order to make greater use of non-regular employees, it is necessary to develop vocational abilities related to the job through systematic and proper implementation of on-the-job training, regular training, support for self-development, etc. (Figure 43).

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