The transformation of the wage and performance appraisal system in a Japanese firm

This paper analyses how performance appraisal has affected the wages of employees in a unionized Japanese firm over time, using firm-level wage and performance appraisal data. Data show that the wage and performance-appraisal systems have been shifting to a performance basis, and away from the heavy reliance on age and seniority characteristic of the old systems. In the process, wage differentials among employees are becoming wider, particularly among those 37 to 41 years old and those 49 to 55 years old. Management introduced the new wage system through a process of concessionary bargaining. Surprisingly, employees, rather than the enterprise union, were able to convince management to modify their initial plans during bargaining over the new wage system.