The shift in Japanese companies’ wage structures from seniority-based pay to performance-based pay is accelerating. The spread of starting-salary inflation is also said to be progressing at the same time.
For many years, Japanese companies’ wage structures were based on seniority, with the wage curve for an employee who joined at age 22 rising gradually until around age 55. Since 2000, however, that model has begun to break down. The spread of performance-based pay and the increase in experienced hires are said to be behind the shift. As companies move toward systems that determine compensation based on ability and performance rather than age or years of service, the relationship between pay and age is also changing.
Some believe that if performance-based pay is applied rigorously, age and length of service will cease to matter and the wage curve will, in principle, flatten out. In some cases, annual compensation for mid-career hires is set according to their ability and performance, which could result in annual income at age 50 falling below that of people in their 30s. In addition, starting-salary inflation is advancing amid labor shortages, with starting pay for new graduates rising sharply while also creating broader repercussions, including dissatisfaction among mid-level employees.