Toyota Motor Corp. will adopt a more flexible and merit-based approach to rewarding and promoting employees, as the return of inflation in Japan triggers a wider reckoning around long-stagnant wages.
(Bloomberg) — Toyota Motor Corp. will adopt a more flexible and merit-based approach to rewarding and promoting employees, as the return of inflation in Japan triggers a wider reckoning around long-stagnant wages.
With Toyota becoming a mobility company that offers a wide range of products and services to transport people and goods — rather than just manufacturing cars — it needs be more innovative with its labor force, not just efficient, incoming Chief Executive Officer Koji Sato said a briefing Wednesday.
Toyota joins a growing cabal of Japanese companies stressing the need to more fully embrace merit-based pay. The moves come amid an historic shift around salaries more generally in Japan, with the central bank urging firms to hike wages to account for the return of inflation. Sato, the former chief of Toyota’s Lexus brand, will become CEO of the world’s largest carmaker next month.
“When it comes to wages, we think of it as an investment in people,” Sato said Wednesday. “And when you consider inflation and the changing labor environment, we also understand the need to make it easier for people to live.”
As the country’s biggest employer, Toyota is seen as bellwether for annual wage negotiations. While Japanese companies have been boosting pay in response to rising prices, the increases haven’t been at levels that are likely to spur the Bank of Japan to end its ultra-loose monetary policy anytime soon. The central bank has indicated it must see stronger growth in pay to ensure the trend in prices is sustainable.
Speaking of broader salary negotiations, Sato declined to comment on decisions by other companies, but added, “I do get the sense that there was a lot of positive discussion during the wage talks.”
Among Japan’s biggest companies, Nintendo Co. said in February that it will raise salaries by 10%, while Uniqlo clothing brand owner Fast Retailing Co. said it will hike annual pay for full-time employees in Japan by as much as 40%.
Toyota said it met union demands in full during the first round of negotiations for the third straight year, having agreed to increase pay, including base wages, and offer bonuses this year equal to 6.7 months of salary.
Overall, estimates for broad wage hikes across Japan’s corporate sector range from around 2.6% to 2.8%, well short of the 5% hike sought by the collective bargaining group Rengo, as well as the 3% threshold that the central bank seeks for meeting its inflation goal and shifting policy.
At the same time, Toyota is planning to phase out evaluations of staff based on education and seniority, and put more focus on individual contributions to the business, as well as industry and society.
Honda Motor Co. Ltd indicated last month that it will raise wages by 5% including the biggest bump in base pay in about 30 years. Honda said the raises would add as much as a ¥19,000 ($141) bump in monthly pay. It also said the salary hikes will prioritize younger employees who are more impacted by inflation.
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