Performance-based Human Resource Management in Japanese Firms: Institutional changes after the late 1980s

Author Name UMEZAKI Osamu (Hosei University)/ Arjan KEIZER (Manchester Business School)
Creation Date/NO. March 2016 16-J-024
Research Project Reform of Labor Market Institutions
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The introduction of seikashugi—performance-based human resource management (HRM)—as an alternative or supplement to ability-based HRM (nōryokushugi) has been the most important change in the HR policies governing regular employees of Japanese firms since the 1990s (Keizer 2010). However, performance-based HRM has been criticized severely (Jo 2004; Takahashi 2004; Nakashima, Matsushige, & Umezaki 2004), and the firms that introduced it during the 2000s did so cautiously. Notwithstanding that, Japanese firms generally realize that they cannot revert to ability-based HRM with its elusive assessment criteria (shokunō shikaku seido and shokunō kyu). Therefore, they have adopted performance-based HRM through trial and error.

This case study analyzes the long process of introducing performance-based HRM in a Japanese firm with 4,000 employees. Firm A introduced ability-based HRM in 1989, switched to performance-based HRM in 2001, and revised its program in 2007 to address subsequent problems. By referring to internal documents spanning 1988-2015 and interviewing HR managers, we clarify the consequences of Firm A's previous personnel management systems, the intentions underlying its adoption of performance-based HRM, and its present problems.

Our analysis reveals that Firm A switched from ability-based HRM because employee evaluations had become too lenient—i.e., they were skewed toward higher ratings—as managers tried to apply its ambiguous criteria. Although performance-based HRM was intended to widen the distribution of rankings, we find that, instead, it prompted managers to assess employees according to their performance of a few elements of multiple tasks. Therefore, Firm A revised its evaluation criteria to focus on indefinite achievements such as employees' contribution to human resource development.