TOKYO (Kyodo) -- Japan's most powerful business lobby on Tuesday called on member companies to review the country's long-held employment practices, including automatic pay raises based on seniority and service longevity, amid the need to attract talent in a competitive and fast-digitalizing economy.
Ahead of the start of annual management-labor wage talks, the Japan Business Federation also urged members to keep the "upward momentum" in monthly base pay for all employees, while emphasizing an "appropriate" allocation of wage increase based on each worker's performance and skills rather than hiking the level uniformly.
Tetsuji Ohashi, vice chairman of the lobby known as Keidanren, said at a press conference that the Japanese-style employment system characterized by one-batch hiring of new graduates in the spring of a business year, automatic wage increases on the basis of their age or length of service and employment until retirement age, has now "faced challenges."
"The Japanese-style system has supported the country's economic growth in the past and has also led to a relatively high employment rate among young people, but in the current age where digitalization is rapidly introduced, such employment practices are becoming insufficient," Ohashi said.
The latest negotiation policy was laid out in the report by Keidanren's Committee on Management and Labor Policy and serves as a guideline for each member firm's spring wage talks for the business year starting in April.
Echoing the lobby's stance, Toyota Motor Corp.'s union plans to propose that a larger emphasis is put on performance when determining workers' pay increases, rather than continuing the current system in which seniority is the main criteria.
Keidanren said making Japanese companies' employment system more flexible, such as hiring experienced people that meet job descriptions anytime during a business year, would help raise competitiveness at a time when more firms need to go global amid the shrinking domestic market.
"Under the current (Japanese-style) employment system, companies cannot sufficiently attract young talent who are motivated and skilled or foreign or experienced workers," said the report.
"The system also makes it more difficult for companies to attract talent and increases the risk of talent fleeing overseas" amid the intensified race to hire and the globalization of business operations, the report said.
Many Japanese companies are already moving away from the Japanese-style employment system.
NEC Corp. has said it will offer an annual salary of more than 10 million yen ($90,900) to new experienced employees with skills in artificial intelligence and other next-generation information technology knowledge.
Rival Fujitsu Ltd. and Sony Corp. have also introduced similar salary systems to offer extra remuneration for specialists in digital technologies.
As for increasing wages, a key component in helping spur private consumption and fighting deflation in Japan, Keidanren said the business circles, labor unions and the government share the goal to maintain the upward momentum.
"But it has become difficult to set a uniform (numerical) goal as companies' business situations differ," Ohashi said.
Keidanren has in recent years focused on raising monthly base pay in the annual wage negotiations in response to Prime Minister Shinzo Abe's requests.
Abe again asked companies last month to raise wages as concerns linger about the adverse effects of the consumption tax hike in October to 10 percent from 8 percent. He did not give a numerical target.