On November 5, 2003, Hitachi Ltd., one of Japan´s major electronic manufacturers, announced that they would abolish their seniority-based annual pay increase system beginning April 2004. In its place, Hitachi will implement a merit based system that is expected to boost employee motivation and contribution to the company.
With the new system, Hitachi will adjust the payment system for over 30,000 non-managerial employees in Japan. These employees will no longer be able to receive automatic pay increases based on the number of years they have worked at the company. In place of the seniority-based pay system, Hitachi will introduce a new career track with a seven-level pay scale. Factory workers will be grouped into a five-level pay scale. Pay increases will be dependent upon individual employee ratings from one to five.
Keisaku Shibatani, a spokesman for Hitachi, said, "We want high achievers to do an even better job, and underachievers to work harder. To survive an economy like this, there are no more automatic annual pay raises like we used to have. Each employee´s achievement now affects the company."
Hitachi first introduced their merit-based pay system to 5,000 managerial employees in 2000. It is likely that Hitachi´s actions will be followed by more Japanese companies switching from seniority-based pay systems to merit-based systems.
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