Under shokunokyu, what an employee is paid depends on their grade, not their role. Each grade in the company's ability grading system carries a pay table, often a series of steps, and the employee climbs a step each year through the regular increment and jumps to a new table on promotion. A section manager moved from finance to a factory keeps the same shokunokyu, because the grade, not the job, determines it.
The design fitted lifetime employment. Companies could rotate staff through very different jobs every few years without renegotiating pay, and ability was assumed to grow with experience. In practice it rose with tenure, because demotion in grade was rare and increments accumulated. Many companies also paid a separate age-based element alongside, so the combined effect was the seniority curve that foreign employers associate with Japan.
Its weaknesses are now widely discussed. Pay for people in their fifties often exceeds the value of their work, which helps explain post-retirement pay cuts and role-retirement ages. Young specialists in scarce fields cannot be paid market rates without breaking the table. Many large employers have moved part or all of base pay to job-based or role-based pay, but shokunokyu still sits underneath many salary structures, particularly for non-managers.
What it means for a foreign employer
- A candidate's pay tells you their grade, not their job. Two candidates with the same title at the same Japanese company can be paid differently because of grade and tenure. Ask where they sit in the grade structure.
- Expect a mismatch with your banding. A strong candidate in their thirties may be paid below market because the table holds them down. That is your opening, but price on the job, not on their current salary.
- Older candidates may be paid above the job's value. A grade earned over decades can leave senior people expensive relative to the role you are hiring. That may require a frank conversation, not a match.
- Acquired companies bring the table with them. Moving an acquired workforce off ability-based pay is a change in working conditions and needs careful handling.
Sources
- Nikkeiren, report on ability-based management (1969).
- Labour Contract Act, Articles 9 and 10 (changes to work rules).
- Cabinet Secretariat, Ministry of Economy, Trade and Industry and Ministry of Health, Labour and Welfare, Job-Based HR Guidelines (August 2024).