Japanese salary systems

Japanese salary systems

When developing salary systems, don't be tempted to use your American system because such a system won't attract Japanese workers. Japan's tax system is different than America's and Japanese salary systems reflect this difference. For example, bonuses are attractive to Japanese workers partly because they are taxed less than regular salary.

Under the bonus system, annual salary is generally paid in 18 installments, with 1/18 paid monthly and 6/18 paid as a bonus, usually in two installments in June and December.

The bonus is actually deferred salary, but if a company's work rules are written to this effect, the bonus can be adjusted up or down to reflect the firm's fortunes. For example, NEC recently paid out bonuses in the form of gift certificates for the firm's own products.

These bonuses have a positive effect for employees because it lowers the payroll taxes they must pay, and it is a large reason for Japan's high savings rate. Workers generally live month-to-month on their base salary, and then sock away most of their bonus.

Also, bonuses are beneficial to the firm because a bonus is non-pensionable income. Pensions generally are calculated by multiplying the years of service by average pre-bonus monthly wages, so the bonus reduces a firm's pension obligation while keeping total salary levels high to attract candidates.

Allowances are also rather unique to Japanese salary systems. Various housing, family and transportation allowances are paid to Japanese employees. For example, I was quite surprised when a colleague of mine received a pay increase - that is an increase in his family allowance - simply because his wife had a baby.

Finally, overtime plays a large role in an employee's total compensation. In fact, many Japanese come to depend on overtime pay because it can represent 15 to 20% of their total annual pay. Also, such overtime pay is not pensionable, so this too reduces a firm's pension obligation.

Also note that sales commissions, although not unheard of in Japan, generally play a lessor role than in the United States.