Discuss the concept of Seniority Based Wage and Promotion System in the Japanese firms
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Organizations in Japan significantly encourage commitment and also make efforts to encourage workers to be capable and highly skilled by enabling them to see that there is no need of changing their work during their career. The outcome of this is an incentive system that has three important fundamentals namely;
The wage system that takes account of the seniority and excellence of an employee
Based on individual merit, individual employees are promoted to higher positions
At retirement, employees receive lump sum payments.
The strong incentive system encourages workers to persist with their first employers for an extended period of time in Japanese firms.
The seniority-Based Wage and Promotion System is a common practice in many Japanese firms, where employees are rewarded based on their length of service rather than their performance or skills. This essay will examine the advantages and disadvantages of the system, as well as the challenges and opportunities for its reform in the context of globalization and demographic change. The main arguments for the Seniority Based Wage and Promotion System are that it fosters loyalty, stability, and teamwork among workers and that it reduces labor turnover and training costs. However, the Seniority-Based Wage and Promotion System also has some drawbacks, such as discouraging innovation, creating inequality, and reducing productivity and competitiveness. Moreover, the Seniority-Based Wage and Promotion System faces increasing pressure from external and internal factors, such as the rise of foreign competitors, the aging of the workforce, and the changing expectations of younger generations. Therefore, this essay will propose some possible ways to modify the Seniority Based Wage and Promotion System to make it more flexible, merit-based, and responsive to the changing business environment.
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Discuss the concept of Seniority Based Wage and Promotion System in the Japanese firms Case Study
Key Learning Outcomes
By the end of the case, students should be able to:
- Understand the meaning of the Seniority Based Wage and Promotion System and how they are of significance to an organization
- Understand how the Seniority Based Wage and Promotion System is used in the course of businesses and how they have helped companies remain competitive in Japanese firms
- Learn how to apply Seniority Based Wage and Promotion System in an organization
1.0 INTRODUCTION
One of the distinctive features of the Japanese employment system is the seniority-based wage and promotion system, which rewards employees based on their length of service and loyalty to the company. This system has been widely adopted by many Japanese firms since the post-war period and has been regarded as a source of competitive advantage and social stability. However, in recent years, this system has faced increasing challenges and criticisms from both inside and outside Japan. In this essay, I will discuss the concept of a seniority-based wage and promotion system, its advantages and disadvantages, and its future prospects.
The concept of a seniority-based wage and promotion system is based on the idea that employees are expected to stay with the same company for their entire career and that their wages and positions will increase gradually as they accumulate more experience and skills. This system is often accompanied by lifetime employment, which guarantees job security and mutual commitment between the employer and the employee. The system also relies on internal labor markets, which means that most hiring and promotion decisions are made within the company, rather than based on external market conditions.
The Seniority Based Wage and Promotion System has various advantages among which include;
It fosters a strong sense of loyalty and belonging among employees, who share a common goal and vision with the company.
It encourages long-term investment in human capital, as employees are motivated to learn and improve their skills over time.
It reduces labor turnover and recruitment costs, as employees are less likely to quit or switch jobs.
It enhances teamwork and cooperation, as employees are more willing to help each other and share information. Fifth, it contributes to social harmony and stability, as it reduces income inequality and prevents labor disputes.
However, the seniority-based wage and promotion system also has some disadvantages.
1. It may reduce efficiency and innovation, as employees are less responsive to market changes and customer needs.
2. It may create rigidity and hierarchy, as employees are constrained by seniority rules and norms.
3. It may discourage diversity and meritocracy, as employees are evaluated mainly by their age and tenure, rather than by their performance and potential.
4. It may increase labor costs and reduce profitability, as employees are paid more than their marginal productivity. Fifth, it may undermine motivation and satisfaction, as employees may feel bored or frustrated by the lack of challenge and feedback.
The future of a seniority-based wage and promotion system is uncertain. On one hand, some Japanese firms have started to reform or abandon this system in response to globalization, deregulation, technological change, demographic change, and social change. They have introduced more flexible and performance-based compensation schemes, diversified their recruitment sources, increased their external mobility, and flattened their organizational structures. On the other hand, some Japanese firms have maintained or reinforced this system as a core value and identity of their corporate culture. They have argued that this system is still effective and relevant in creating a long-term competitive advantage and a distinctive organizational capability.
In conclusion, the seniority-based wage and promotion system is a complex and controversial phenomenon that has shaped the Japanese employment system for decades. It has both strengths and weaknesses that need to be carefully balanced and evaluated. It also faces various challenges and opportunities that require adaptation and innovation. Whether this system will survive or decline in the future depends on how well the Japanese firms can cope with the changing environment and expectations.
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