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PAY SYSTEM OF

UK AND JAPAN

CONVERGING OR

DIVERGING?

The author researched recent trends in UK and Japanese pay systems in order to examine whether the two types of pay system are converging or divergent.

International organizations are facing the extent to which their human resource practices should either

'converge' worldwide to be basically the same in each

location, or 'diverge' to be differentiated in response

to local requirements.

HRM SYSTEMS

HRM systems are largely divided into two types;

Market-based Organization-based

  • UK is used to represent market-based HRM

and Japan is often used as represent

organization-based HRM.

FACTORS FOR ANALYSIS OF

PAY SYTEMS

Job
Job
Basic Factors of Pay System Person Market
Basic
Factors of
Pay
System
Person
Market

KEY CHARACTERISTICS OF UK

AND JAPANESE PAY SYSTEMS

UK

JAPAN

JOB-BASED

PERSON-BASED

MARKET-BASED

ORGANIZATION-

BASED

FLOW-BASED

STOCK-BASED

INTERNAL FIT AMONG

PAY SYSTEMS

The person-based and organization-based systems are suited to the stock-based system.

Under the stock-based system, the individuals’ current value and performance levels are not

necessarily consistent with their pay levels; therefore, stability in the level of pay is desirable.

INTERNAL FIT AMONG

PAY SYSTEMS

  • The Job-based and market-based systems

are suited to the flow based system which

means pay levels change from time to time. Pay levels can change as a result of a change of job assigned under the job-based system and

market pay can change in relation to demand

and supply in labor market.

INTERNAL FIT

AMONG PAY

SYSTEMS

Organization-based

INTERNAL FIT AMONG PAY SYSTEMS Organization-based Person-based Stock-based Market-based Flow-based Job-based
  • Person-based

INTERNAL FIT AMONG PAY SYSTEMS Organization-based Person-based Stock-based Market-based Flow-based Job-based

Stock-based

Market-based

INTERNAL FIT AMONG PAY SYSTEMS Organization-based Person-based Stock-based Market-based Flow-based Job-based

Flow-based

INTERNAL FIT AMONG PAY SYSTEMS Organization-based Person-based Stock-based Market-based Flow-based Job-based
  • Job-based

CURRENT SITUATION OF

THE JAPANESE AND UK PAY SYSTEMS

They conducted a research on current situation. The research had 2 stages;

First Stage: Based on existing research to capture general trends. Second Stage: Case studies which include 10 Japanese firms and 8 UK firms.

CURRENT SITUATION OF

THE JAPANESE AND UK PAY SYSTEMS

Criterias for selecting the firms:

Organizational size(firms with more than 1000 employees) Ownership Structure(indigenous firms) Industrial Sector

The main purpose of the case studies was to set out the pay system situation in detail and to identify how

and why pay systems change or don’t change.

CURRENT SITUATION OF

THE JAPANESE AND UK

PAY SYSTEMS

The results show that the first switch is from a person-based system towards a job-based system. Although the person-based pay system is still the most widespread system in Japan, it can be seen that

use of the job-based has been increasingly rapidly.

The UK pay system continues to retain the characteristics of a job-based, organization-based

and flow-based system.

CHANGES IN JAPANESE CASE

STUDY FIRMS

The results show that Japanese firms started to change the system into job-based system.

4 firms introduced job-based system for all employees. 3 firms introduces job-based system for managers.

CHANGES IN JAPANESE CASE

STUDY FIRMS

The change accompanies a change from a stock- based system to a flow-based system.

The firms started to decrease the pay levels according to job-based system. That means a

change to flow-based system.

Instead of emphasizing performance, all case study firms abandoned or reduced age-related

pay.

CHANGES IN JAPANESE CASE

STUDY FIRMS

Another change is in organization-based system. 5 case study firms used market pay rate for at least some employees. Three of them

implemented market pay using market salary

surveys. Two of the five firms exchange information about pay levels.

Compared the job-based market pay system, it is not widespread. According to the case study

firms, the main reason is the difficulty in

gathering data of the market.

CHANGES IN UK CASE STUDY FIRMS

The case studies found several minor changes within three characteristics. The first

change is in pay structure.

4 case study firms change towards a broadly and loosely banded structure. 2 case study firms abolished pay bands corresponding to jobs. They are extreme or more progressive cases of a broad banding or loose

banding pay structure.

CHANGES IN UK CASE

STUDY FIRMS

The main reasons for this change are increasing flexibility and adaptability of pay determination in

accordance with individual performance and market pay. The second change in the method of pay determination according to a shift in relative importance from internal relativity towards external relativity. The third change in the method of job evaluation from point-factor scheme (analytical job evaluation) towards non-analytical job evaluation.

CONCLUSION

  • As a result, many surveys indicated us,

the Japanese pay system has changed its

key characteristics: from the person-based

towards job-based, from the organization- based towards to market-based, from the

stock-based towards flow-based systems.

  • In contrast to Japanese pay system, no

changes in UK pay system according to

three key characteristics, although minor

changes were found within the framework of the three characteristics.

BETÜL SERT DENİSA ULUYAZI

1002140072

1002140050