Human resources

Who’s looking grumpy in Japan’s summer bonus season?

If you’ve noticed your Japanese colleagues looking grumpier than usual and making pointed remarks about the amount of money overseas offices soak up, you may need to be aware that it’s not just the heat and the typhoons getting to them, but the fact that despite Prime Minister Abe’s push, some companies are still cutting salaries – and employee numbers are shrinking. The summer bonus season, which will have been added to their monthly pay cheque in June or July, may have reminded them that their salaries have not increased much in real terms over all for some years, but they are supposed to be grateful they have a secure job, with bonuses, benefits and a pension.

It’s surprising to see who tops the list in Toyo Keizai’s ranking of companies who have had the biggest reductions in pay and number of employees over the past five years – trading company Mitsui Bussan is at #1. Toyo Keizai reckons this is because their business was badly hit by falling resource prices over the past few years. Although average annual income at Mitsui is high – around Y12.3m (US$111,000), it has dropped by Y1.48m compared to five years’ ago. The number of employees has also fallen by 201 to 5,971. Sumitomo Corporation, another major trading company is at #9 – average income falling Y1.255m but personnel numbers only falling by 23. Mitsubishi Corporation is at #78 – total average income has fallen by around Y260,000, and numbers of staff have dropped by 579 to 5,217.

As you might expect, given its recent problems and selling off of businesses, Toshiba is in the top rankings, at #15, having reduced the number of employees by 4,401, to 32,353, with average income falling by Y880,000. Similarly Sharp has also reduced total average income by around Y600,000 and cut staff at almost double the rate of Toshiba, by 8,175, to 13,363. Sony has reduced staff even more, by 10,391 to 6,185, and total average income has fallen by Y410,000.

Eisai, the pharmaceuticals company, is at #23, having cut its staff by 938, to 3,246 and average income falling Y710,000. There has been no obvious negative issues for Eisai over the past five years, so maybe this is the work of the CFO, Ryohei Yanagi, trying to keep ROE above 8%, as we previously blogged.

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Diversity and creativity

I’m writing this in the cafe of the Royal Academy, having just visited the Summer Exhibition. This annual art exhibition is one of the events of the London Season, a summer of parties and events such as the Chelsea Flower Show, the Epsom Derby and the Henley Royal Regatta.

You might expect the Summer Exhibition to be very traditionally British, but this year, to mark the 250th anniversary of the Summer Exhibition, the not very traditional, self-described “transvestite potter” Grayson Perry was asked to curate the exhibition, on a larger, more diverse and inclusive scale than ever before.

Just as in previous years, the members of the Royal Academy – professional artists – exhibit their recent work at the exhibition and non-members are also invited to submit works of art. Perry and his team viewed a record 20, 000 works for selection and as a result the rooms were crammed with all kinds of paintings, sculptures, videos, embroideries and architectural models created by people of many nationalities, including some Japanese artists such as Katsutoshi Yuasa.

It could have been an incoherent mess, but actually I think it succeeded in capturing the UK right now: creative, humorous, political, multicultural, celebrating the amateurish and the outsider, but also the British countryside, cityscapes and people.

Before visiting the exhibition, I attended a lunch at which a British trade minister spoke. He was trying to be positive about Brexit, emphasising that the UK would continue to be a good place to invest because of our excellent research-oriented universities, skilled and creative workforce and stable legal and financial infrastructure. He pointed out that Rakuten and Fujitsu have both invested in UK based fintech and technology initiatives in the past year.

He did not of course mention that manufacturing operations in the automotive supply chain are beginning to shift to the EU. Jaguar Land Rover announced it will move production to Slovakia, which is also where at least one Japanese automotive components supplier with production in the UK has set up a plant in the last year.

Most of the questions from the audience of Japan-related businesspeople were about immigration however. The cap for visas for non-EU immigrants (which includes Japanese intra company transfers) has been reached every month for the past 6 months and EU immigrants have started returning to their home countries or not coming to the UK in the first place.

UK unemployment is at a historic low. One Japanese recruitment agency told me that their UK vacancies have increased 50% year on year. Firms are worried that after Brexit it will become even more difficult to recruit EU and non-EU workers.

One proposed solution, which will take some time, is to train low skilled British people in higher levels of skills and replace low skilled labour with robotics. But as the Summer Exhibition proved, diversity and multicultural influences are what have defined and made the UK an attractive place for innovation in the first place.

The original version of this article can be found in “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

Why Japan’s salaries should rise

Prime Minister Abe has been pressurising Japanese companies to increase wages for some years now, and yet Japanese companies are still sitting on piles of cash. Japanese wages have not increased more than 5% a year since the early 1990s, mostly averaging around 2-3% wage rises a year. The Japanese economy has been in a period of deflation since the late 1990s until the past year or so, so these are real wage increases. Nonetheless, there is a vicious circle between deflation and low pay increases, which Abe wants to break as part of his 3 Arrows for reforming the Japanese economy.

Low Japanese salary levels

Although I knew Japanese salary levels were not that high relative to other developed economies, I was surprised to see in the Nikkei Business magazine that average British salaries for the head of R&D at a pharmaceuticals company (£400K) or a CFO of a multinational (£390K) are so much higher than Japan (less than £200K) and even the USA (£200K to £250K). I wonder if these figures are net of any bonuses. Traditionally, Japanese companies paid 1/18 of salaries monthly, retaining the remaining 6/18 for twice yearly bonuses. Increasingly these bonuses are performance related, particularly at management levels.

Earnings distributed to shareholders or retained

Nikkei Business then goes on to analyse how earnings are distributed in Japanese companies, between labour, retained earnings and shareholders. The proportion paid to shareholders has been steadily increasing for Japanese companies, recently outstripping the proportion paid to labour (which has been in decline since 2008), but still below the retained proportion, which has been fairly steady these past 10 years. In the US retained earnings is the lowest proportion, declining since 2009, whereas shareholders have the highest share, increasing since 2008, with labour’s share declining since 2000, with a slight bump upwards around 2007/8.

Root causes of labour’s declining share

Root causes for this might be that labour’s negotiating power has fallen – unionization in Japan has fallen from nearly 60% of the workforce in the immediate postwar period to under 20% by 2017. Also thanks to Abe’s labour reforms, companies are not paying out so much for overtime – theoretically at least there is less overtime being done – but this is not being replaced by increases in base salaries.

Who could pay their employees more?

The juiciest bit of Nikkei Business’s feature is in the listing up and analysis of companies who have the biggest potential for increasing salaries:

1 . Tokyo Electron (scores highest on Return on Equity 10, net cash 9 and revenue growth 9 with a 3/10 on returns to labour

2. Nintendo (Dividend payouts 9, capital to asset ratio 9, net cash 10, returns to labour 2)

3. Kakaku.com (ROE 10, capital to asset ratio 9, revenue growth 9, returns to labour 4)

4. Subaru (net cash 10, revenue growth 8, dividend payouts 8, returns to labour 2)

=5. Start Today (revenue growth 10, ROE 10, dividend payouts 7, returns to labour 3)

=5. Chugai Pharma (capital to asset ratio 9, net cash 9, dividend payouts 8, returns to labour 3)

=5. Yahoo, Recruit, with MonotaRO and Fanuc at =9.

Other companies in the top 30 who are also active in Europe include Murata, Kao, Keyence, Shimano, Astellas and Hoya.

It’s an intriguing mix of new internet companies, growing fast, but perhaps preferring to pass on success to shareholders rather than employees and traditional, older companies who are preferring to retain earnings for a rainy day.

The special feature concludes with an interview with Hideto Fujino of Rheos Capital Works, in which he says investors want to hold shares in Japanese companies who raise salaries, if this is to attract more motivated, talented employees. “We don’t see payroll as a cost, but an investment”.

March of Japanese labour reforms stalled

March has always been a stressful, uncertain month in Japan. Most companies, schools and universities start their new year around April 1st and this is also when corporate promotions and restructurings are announced.

Prime Minister Abe has been adding to the stress by trying to push through various labour market reforms, aimed at expanding “discretionary labour” by the end of the parliamentary session in June, but has had to row back on some of them due to the data on which they were based turning out to be severely flawed.

Status conversion rule

One piece of legislation which will be enacted from April this year is the new status conversion rule. This will allow fixed term employees renewing contracts for more than five years – usually temporary workers dispatched from staffing companies, or part time workers or contract workers – the right to switch to indefinite employment with no fixed period. In other words, the kind of lifetime employment, regular contract that Japan’s seishain (proper staff – see other posts on this here) have.

The gap in status, job security and benefits between seishain and” irregular workers” has been an enduring sore in Japanese society since the immediate postwar period of labour shortages in Japan when the lifetime employment system became established. The proportion of irregular workers in the Japanese workforce has grown since the 1990s, to around 37.3% of the workforce – 10% up on 10 years’ ago.

Irregular workers will disappear – maybe

Toyo Keizai magazine has an article headlined “Irregular workers are disappearing” saying the new status conversion rule will be a big shock to companies that rely on non-permanent employees. However surveys show very few employees and even HR managers are aware or understand the new rule, and companies are not making much effort to stimulate interest in it, unsurprisingly.

Japanese recruitment agencies go global – again

Presumably it will also be a shock to staffing agencies in Japan too, who have done rather well out of the rise in this sector of the workforce. There is a further rule imposing a three year deadline for temporary employment from a temping agency, after which the company will have to hire the employee directly – which will come into force from September.

No wonder recruitment agencies have started a second bout of acquisitions overseas – recent acquisitions in Europe include Outsourcing acquiring JBW, Liberata and Ntrinsic in the UK and Orizon in Germany and Recruit acquiring USG People in the Netherlands.

Arab and Japanese Culture

An Arab participant in one of my seminars in Dubai last month suddenly put up her hand and blurted out, “I recognise this so well in my family!” when I was describing Japanese group orientation and non-verbal communication and concepts such as “ishindenshin” and “omoiyari”.

I asked in what way she thought Arab people and Japanese people were similar, and she told me that three generations of her family live together, just as traditional Japanese families used to. One evening, her grandmother asked her “what are you thinking of eating this evening?” The young woman was actually about to go and get a McDonalds hamburger, but recognising that her grandmother was hungry, asked her what she would like to eat. Her grandmother said “oh I am not hungry. I don’t need anything.”

So the young women went to buy a take away traditional Arab meal. When she offered it to her grandmother, her grandmother refused it. So they started to eat, leaving a portion with her grandmother, who then finally started to eat it.

This is not the first time I have been told by an Arab person that Japanese and Arab cultures have a lot of similarities. When I ask why, they mention a mix of family orientation, a strong relationship orientation in business, respect for seniors, and, as the young woman’s story about her grandmother illustrated, being very indirect in expressing needs.

So you would think it might be easy for a Japanese person to fit into the Arab business culture, but actually there are two issues for the many Japanese expatriates working in Dubai that make this less easy. One is that Dubai itself is one of the most multicultural cities in the world. 88% of the population are not Emirati. Almost everyone is a guest worker rather than having permanent residency. So Japanese expatriates in my workshop had to cope with many nationalities on their team, ranging from Europeans to Indians to Lebanese.

Secondly, group orientation means that there is a clear sense of in-group and out-group. Expatriates in Dubai find it very hard to become an “insider” in Dubai society. For example, amongst Arab business people, during Ramadan, it is customary to visit customers’ houses in the evening for the meal which breaks the fast. Hospitality is another very strong cultural value in Arab culture. Nonetheless, I can imagine you would have to be a very brave person to turn up at a customer’s house if you weren’t an Arab yourself.

So Japanese companies have done the sensible thing, which is to hire young local Arab graduates, offering them training and a career paths. However, there is huge diversity even amongst Arabs. Sitting next to the headscarf wearing woman who told me about her grandmother was the other graduate recruit, another young woman, wearing an abaya (traditional Arab dress), but with her long hair uncovered. She had been educated at an international school, and felt more close to the American cultural values I described.

This article appears in Pernille Rudlin’s latest book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

Japan has not faced up to the need for re-training in an ageing society

Japan’s population has already peaked at 127 million, and on current projections will be under 100 million by 2053, with around 1 in 4 people aged over 75 and under 60 million by 2100, by which stage 1 person in 2.5 will be elderly. The Nikkei Business magazine has a special feature on what this means for Japan and how to make sure this future is a happy one. Japan is of course the canary in the coal mine for other developed societies facing similar demographic changes, such as Western Europe, but, so far, does not seem to be taking the route that Western Europe has, of allowing immigration to rebalance the demographic trends.

Happy vs Bad scenarios

The “happy scenario” is where the elderly find jobs as “cloud workers” doing subcontracted administrative work for their local authority, live in affordable social housing and their pensions can allow them a comfortable lifestyle. They might accumulate points from their work which go towards healthcare and social care.

The “bad scenario” is where salaries are only just enough to make ends meet and if you are living on your own, aged 80, you find it hard to do physical work. Social infrastructure has not been renewed, and living conditions are worsening. People are fleeing the suburbs in search of a cheaper cost of living. Intergenerational wage gaps have not been adjusted, and this is having an impact on pensions. Low wages have led to a chronic labour shortage.

The new multistage life and career

The Nikkei then goes on to interview Linda Gratton, of the London Business School, regarding her concept that our lives will no longer be three distinct stages of education, work and retirement, rather multistage, with a time of retraining, which may result in no longer working for an organisation as an employee.

A rather depressing graph accompanies this, showing that Japan has the lowest number of people over 25 in further education (2.5%) compared to the OECD average of 16.6% – only the Netherlands has a similarly low rate, and Germany, the UK and Spain are also below average.

Japanese corporate training budgets are a tenth of Germany’s

Japan’s generally high level of education might explain this, but another chart also causes concern, comparing Germany to Japan in terms of corporate training. Siemens spends over $1100 per employee per year, compared to $130 average spending on training by Japanese companies on their employees. Training in Germany is for the whole industry (presumably they mean Germany’s national apprenticeship schemes) whereas for Japanese companies, training is only offered to employees. The content of the training in Germany is transferable skills, and in Japan it is only useful for that company or industry. German training includes e-learning via smartphones and PCs, whereas in Japan it is “on the job training” and classroom based training.

Actually I have noticed more e-learning in Japan too, although it is mostly for internal compliance purposes. Despite the fact that I have recently created some e-learning, I am not sure it is a sufficient alternative to class room based training, particularly for soft skills. But certainly if we are thinking of retraining people in skills needed for becoming “cloud workers” then it will have an important role to play. Indeed the e-learning I have developed in Japanese is specifically aimed at Japanese people working in virtual global teams.

Japanese firms’ re-training, re-employment provision

The final part of the feature details a survey of various listed Japanese companies’ employees about their systems for allowing second jobs, early retirement, individual education and re-employment. 62% of Japanese companies allow employees to have second jobs, usually with some restrictions. 68% have an early retirement scheme, for 44% of those, it kicks in at age 50, 29% from age 45 and 12% from age 40 and also age 55. 52% do not have any support system in place for re-training or overseas study, although some do allow time off for study at an employee’s own cost. 80% of firms have a re-employment scheme for people who have left the company, but with various conditions, such as they should have left the company in order to bring up a family, or to look after elderly relatives, or to accompany a spouse when they had to move for work.

Nikkei’s Business’s message to Japanese companies is clear – for a happy future society, they need to step up their support for older employees to develop their second careers.

Increased pressure felt by Japanese to speak English at work

36.3% of Japanese people responding to a Nikkei Business survey in November 2017 say that they have felt a dramatic increase in the need to communicate with non-Japanese people at work or because of work in the past few years. A further 32.1% have felt a gradual increase.

Only 18.9% say that English has become or may become the official or unofficial corporate language, however. 39.2% say there is a connection between performance and being able to speak English and a whopping 82.4% say they feel the need to improve their English speaking ability. The main reasons chosen for feeling this way are:

be able to do my job better (>70%)
improve my relationship network (>40%)
increase my career choices (>40%)
be able to work overseas (>30%)
improve my performance evaluations (<10%)
look as if I’m high potential (<10%)

The article makes an interesting point that those Japanese over 50 are actually quite good at English, often having worked overseas or been involved in export related jobs and benefitted from corporate budgets for English classes. Those in their 20s take it for granted that they need to be able to speak a good level of English, as this was important when they were on the graduate recruitment circuit.

So the generation that is suffering the most are those in their 30s and 40s, who did not have a chance to work overseas or study overseas in the Lost Decades of the 1990s and 2000s and also suffered from budget cutbacks on language training.

Giving feedback is not just a language issue

There has been a marked increase in the number of clients asking me to provide training for Japanese expatriate managers in Europe on giving feedback and performance appraisals. I’d like to think this is because our marketing is having an impact – but on talking to the HR departments of our customers, it seems they have become aware of an increasing number of workplace conflicts between Japanese managers and their teams.

European employee dissatisfaction with Japanese managers’ feedback style is not a new issue. Complaints usually include that no feedback is given, or only negative or quantitative feedback. I usually explain that giving feedback is not as embedded in Japanese workplace culture as in Europe. Also, Japanese employees are used to working collaboratively as a team rather than having individual performance evaluated. The best employees are deemed to be the ones who look to improve themselves without having to be told.

I remember when I was working in Japan in the 1990s, many Japanese companies started introducing seika shugi (performance based systems) but often not very successfully. Evaluating individuals ended up destroying the collaborative, knowledge sharing work environment that is one of the strengths of the Japanese workplace.

The Japan HQ appraisal systems that have developed since the 1990s are much more quantitative than European systems. The manager gives numerical scores not just for performance and achievement of objectives, but also of behaviours, mindsets and competences. In Europe, we usually just give qualitative assessments of the latter, such as “meets expectations” or “exceeds expectations” or “below expectations”.

I suppose the Japanese quantitative approach seems more objective, and less personal. Numbers can be analysed across the whole company, and are not subject to interpretation or language barriers.

European managers use qualitative appraisals to stimulate a dialogue about what expectations they have for each individual and then come to an agreement on development opportunities for individual employees in terms of support that they need from the manager, training needs and potential career paths.

The norms of the workplace are rooted in our educational systems

My experience of the Japanese education system is that exams are of factual knowledge and knowing how to do something, often using multiple choice tests. Such exams assume there are clear right and wrong answers.

European education focuses more on critical thinking and understanding the reasons behind something. Exams are essay based, even in science. Scores are partly on getting the facts or the methodology right, but also on the quality of your arguments and the evidence you bring to prove your point.

Consequently, European employees do not unquestioningly accept numerical scores for individual behaviours, mindset and competences. They expect a manager to set clear expectations, give regular feedback and then be able to explain, with evidence, why the employee has met or not met them when challenged. The millennial generation is particularly demanding in this respect. No wonder Japanese managers need training on this – it’s not just a language issue.

This article was originally published in Japanese in the Teikoku Databank News and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

4 keys to improving Japanese women’s productivity

David Atkinson, a former Goldman Sachs Japan partner who now runs Konishi Decorative Arts & Crafts in Tokyo, regularly features in the Japanese media, most recently in an article in the Toyo Keizai about why Japanese women’s productivity is so low. He argued that the usual reason given, that women are poorly paid because they are in part time, temporary or short term contract jobs is simply pointing to the effect rather than the cause of low productivity. Women’s low rates of pay reflects their low productivity. This is because women are not given high value added work to do and their potential is poorly evaluated. He argues that Japanese women’s productivity needs to improve because

1) they receive as much welfare as men do, so should contribute equally to the funding of that welfare

2) a declining population means those in work need to be as productive as possible to support the increasingly elderly, non-working population

3) Japan’s resistance to immigration as a means of increasing the working population means that the only alternatives are either to cut welfare or increase productivity.

The journalist who interviewed Atkinson, Renge Jibu, in a follow up article, recommended the 4 following actions for Japanese management:

Make clear the costs of hiring and developing employees, by analysing the status of male and female employees with the same level of education and training 5, 10 or 20 years on. They might find that women who they thought had left to raise a family are now in similar jobs in other companies or have joined a start up where they saw more opportunities. This represents a cost to the company in terms of the loss of investment in initially hiring and training them.
Recognise that there is a loss of opportunity in giving easier work to women with the same potential as men. Giving women employees less productive work is a cost. It’s like having a new computer and yet never connecting to the internet to do your work.
If you realise that you are not making good use of your female employees, give them more difficult, higher value adding work to do. Japanese companies are good at reassigning people rather than firing them. One major company reassigned its female administrators to sales roles when they were no longer needed thanks to office automation and was surprised to find that their sales results improved far more than they expected, so gave even more work to those women who showed willing. They are now one of the most highly rated for gender diversity in management.
The reason women often don’t want to do difficult work is the result of many years of being treated differently to men – and this should be recognised. It takes a change of attitude on both sides to make a difference.

The tragic limitations to Japan’s lifetime employment system

Since the suicide of a young female employee at advertising giant Dentsu in December 2015 was deemed to be due to overwork, there has been a rash of articles in the Japanese media asking whether it’s time to change Japan’s lifetime employee “seishain” (regular or proper staff) system (previously blogged about here).

Nikkei Business described the main characteristics of the seishain system as:

No job role boundaries
Long work hours
Pay increases based on seniority

Which results in:

Strict terms of employment, so when there is an an economic downturn, the employee can be reassigned
Seishain as fixed costs, so it is difficult to transfer over non-regular staff into the system
Seishain not being hired into a role, but into the company, so you do not have transferable skills which will enable you to work elsewhere
Irrational human resource allocation because of features of the system such as retirement from line management at 55
Difficulties in utilising seishain who have household or elderly care duties
A reduction in pension and health insurance benefits because of transferring to a smaller company from a larger company
The risk of losing the element of salary that was based on seniority if you change employers
A lack of workers shifting from dying industries to growth sectors

There is still a big pay gap between seishain and non-seishain, and yet the real average pay of all employees in Japan has fallen since 2005 (with 2002 as the base=100, 2015 = 95).

30% of Japanese men and 10% of Japanese women work more than 49 hours a week, compared to 17% in the USA, 18% in the UK for men/6% for women, 16% of German men/4% German women, 15% of French men and 6% of women and 10% of Swedish men and 4% of Swedish women.

The percentage is even higher for Japanese seishain – 40% of men, 20% of women.

A Nikkei internet survey of 1343 Japanese employees revealed that the biggest reason (70%) for overtime was that there was such a volume of work. Just under 40% said there was a lack of people to do the work. Other reasons were that there were particular features of their work requiring overtime, that there were too many meetings, that it was expected of them, that it was difficult to go home if others were working and the least popular reason was “in order to increase pay”.

But as one of the participants said in one of my seminars last week – Japanese employees are very expert at stretching their work out so that overtime becomes necessary. The urge for 100% perfection in the tiniest details is also a root cause I would say.

There are signs of change – some companies have started paying part timers and contract workers exactly the same as seishain and many companies are trying to improve productivity and reduce working hours.

Prime Minister Abe announced in September a Council for the Realization of Work Style Reform – to tackle 9 areas – listed here – in an attempt to address the limitations of the lifetime employment system. Interesting to see that “the issue of the acceptance of foreign personnel” is #9.

Category: Human resources