Seika shugi (成果主義) means pay and promotion based on results: what a person achieves, rather than their ability grade, age or length of service. Japanese companies adopted it widely in the 1990s and early 2000s, after the bubble economy collapsed, as a way to control rising labour costs in an ageing workforce and to reward performance. The first wave disappointed, and many companies revised it. But it broke the link between pay and seniority in many large employers, and prepared the ground for the job-based reforms of the 2020s.
What came before: pay for ability and seniority
From the late 1960s, most large Japanese companies paid people through a grading system based on ability (職能資格制度, shokuno shikaku seido), which the employers' federation Nikkeiren codified in Nōryoku shugi kanri (能力主義管理, 1969). Employees moved up grades as their ability to do work was judged to grow, and pay followed the grade, not the job. In practice ability was hard to judge and rarely judged to fall, so grades, and pay, rose steadily with age and tenure (年功序列, nenko joretsu). With lifetime employment and annual graduate hiring, the system rewarded loyalty and made rotation across jobs painless, because a person's pay did not depend on which job they held.
It worked while the workforce was young and the economy grew. By the 1990s neither was true: an older workforce on rising grades meant rising costs, and slow growth meant fewer senior posts to promote people into.
What seika shugi changed
| Ability-based grading (職能資格) | Seika shugi (成果主義) | |
|---|---|---|
| Pay rises with | Judged ability, in practice age and tenure | Results against goals |
| Appraisal | Ability and attitude, over years | Goals set and reviewed each year (management by objectives) |
| Bonus | Largely fixed number of months | Varies with individual and company results |
| Pay can fall | Rarely | Yes, in principle |
| Applies to | Everyone | Usually managers first, then others |
Companies introduced goal-setting and annual appraisal against goals, bigger bonus differences, annual pay for managers (年俸制) at some, and in some cases pay that could fall.
Why the first wave disappointed
Many of the early schemes ran into the same problems:
- Short-term goals. People set targets they could hit and avoided long, risky or team work that would not show in a year.
- Appraisal capacity. Managers trained in a system of slow, collective judgment were asked to make sharp individual distinctions every year, and many could not or would not.
- Teamwork suffered. Japanese work organisation depends on cooperation and on helping colleagues, which individual targets did not reward.
- Cost-cutting in disguise. Employees saw that the reforms often served to hold down pay for older staff, and trust fell.
- Little real differentiation. Ratings clustered in the middle, so pay differences stayed small while the administrative burden grew.
Fujitsu is the case most often cited. It proposed management by objectives to its union for the second half of fiscal 1993, introduced it in 1994 for specialist grades below management, extended it to general staff in 1996 and replaced its ability grades in 1998, by the union's account. Its later revisions, and those of other early adopters, made "the failure of seika shugi" a common theme in Japanese business writing in the 2000s; the HR management scholar Motohiro Morishima asked in 2004 whether seika shugi energised companies at all.
What it left behind
Seika shugi did not end, it evolved. Goal-based appraisal and performance-linked bonuses are now standard in large Japanese companies. Many moved to role-based grading (役割等級), which pays for the size of a person's role rather than their ability grade, a step towards job-based pay. The job-based employment reforms of the 2020s, led by companies such as Hitachi and Fujitsu and backed by the government's 2024 guidelines, go further, defining jobs and paying for them. The lesson of the 1990s still applies: changing the pay formula without changing how people are appraised, developed and moved does not change behaviour.
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Questions
What does seika shugi mean?
Seika shugi (成果主義) means paying and promoting people based on their results rather than their ability grade, age or length of service. It is usually translated as pay for performance or results-based HR.
When did seika shugi start in Japan?
It spread in the 1990s and early 2000s, after the bubble economy collapsed, as large companies looked to control labour costs and reward performance in an ageing workforce.
Why did seika shugi fail?
The first wave was widely judged to have disappointed: short-term goal setting, weak appraisal skills, damage to teamwork, and a perception that it was mainly a way to cut pay for older employees. Many companies revised their schemes rather than abandoning them.
What is the difference between seika shugi and job-based employment?
Seika shugi pays for results within the existing system of grades and rotation. Job-based employment defines each job and pays for the job itself, which changes how people are hired, moved and paid, not only how they are appraised.
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By Yan Sen Lu, Managing Director of Makana Partners and Editor of The Hardest Market.
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