The concept comes from Peter Drucker's 1954 book The Practice of Management. Some large Japanese companies adopted it in the 1960s, mainly as a tool for development and motivation rather than for pay. That changed after the bubble burst. As companies tried to move from seniority to performance in the 1990s, MBO became the standard way to measure results. In the Institute of Labour Administration's 2022 survey of personnel systems, published in Rosei Jiho, 78.4% of responding companies used it.
The cycle is usually half-yearly, in step with the bonus. At the start, the employee drafts targets that cascade from the department's plan, and agrees them with the manager. Midway through there is a review. At the end, the employee assesses themselves, the manager assesses them, and the result feeds into the performance part of the evaluation.
The common criticism in Japan is that the system rewards caution. If pay depends on hitting agreed targets, employees have every reason to negotiate easy ones, and managers, who will later have to defend the ratings, often accept them. Targets for staff functions are hard to make measurable. Some companies have added OKRs or frequent one-to-one meetings to keep the developmental purpose, while keeping MBO for pay.
What it means for a foreign employer
- Your global goals process will feel familiar. Most mid-career hires have set objectives before. What differs is the size of the link to pay, and how stretching the targets are.
- Ask about targets, not achievement rates. A candidate who hit 100% of every target for years may have negotiated safe ones. Ask what the targets were and who set them.
- Translate cascaded goals carefully. Objectives written in English at regional level can lose meaning by the time they reach a Japanese team. Agree them face to face.
- Expect a twice-yearly rhythm. Japanese staff are used to reviews in step with summer and winter bonuses. An annual cycle can feel distant.
Sources
- Peter F. Drucker, The Practice of Management (1954).
- Institute of Labour Administration, survey on the implementation of personnel and labour systems (2022), reported in Rosei Jiho.