Human Resource Management System

Reforms at Matsushita
The case discusses in detail about the reforms in the liberal human resource
management policies at Matsushita and the lifetime employment policy at Japanese
corporations. Matsushita was a traditional Japanese company that followed the
policy of lifetime employment. However, due to various problems like falling
revenues, company posting losses and slowdown in the global economy, the company
was forced to change its employment policy. The case discusses how Nakamura, the
President of Matsushita, introduced a new personnel system at the company with the
objective of reducing human resources costs to the company. Finally, the case talks
about the benefits reaped by the new system.
 Human Resource Management System
Reforms at Matsushita
“The collapse of lifelong employment in the world’s largest consumer electronics
manufacturer shows the company is hell-bent on surviving cut-throat global
competition by urging middle-aged employees to quit or polish up their skills.”
- mdn.mainichi.co.jp1 (2001)
“We must be reborn as a 21st century-style Matsushita. We have a deep sense of
crisis. Signs of hope for an early recovery aren't there.”
- Tetsuya Kawakami, Director, Matsushita (www.canoe.ca, July 31, 2001)

Revising The ‘Generous’ Employment System

In July 2001, Kunio Nakamura (Nakamura), the President of the world‟s largest
consumer electronics manufacturer, Matsushita Electric Industrial Company
(Matsushita) of Japan, decided to put an end to the company‟s policy of „lifetime
employment,‟ which had been an important part of the Japanese management
philosophy for decades. In September 2001, Matsushita introduced an early retirement
plan and planned to implement it in five major companies2 of the Matsushita group.
This news shocked the Japanese business world, as Matsushita was well known for its
age-old lifetime employment policy. The drastic changes announced by Nakamura
were unheard of in the Japanese business community. Moreover, the company also
acknowledged that this was the first time it was asking its employees for an early
retirement. Matsushita took pride in never resorting to lay-offs even during severe
recessionary periods that followed the Second World War in Japan.
Analysts felt that Matsushita was forced to change its lifetime employment policy
mainly because of a significant decline in its operating profits in the financial year
ending March 31, 1999 and 2000 (Refer Exhibit I) coupled with problems such as
global economic slowdown and Asian currency crisis. They felt that Matsushita had
no other alternative to retain its position but to do away with its „generous‟
employment policy of the company. Nakamura said, “If every employee over 50 left
the company, including myself, Matsushita would revive instantly.”
By December 2001, Matsushita received 10,000 applications from its employees at
five companies. All of them offered to quit by early 2002. Analysts felt that this was
mainly because of the „generous‟ severance package announced by Matsushita. The
company had offered to pay as high as 40 months wages as additional allowance apart
from the regular retirement allowance the employees were entitled to.

1
According to the article “10,000 workers at Matsushita opt for early retirement” dated
December 7, 2001.
2
The five companies included Matsushita Communication Industrial Company, Matsushita
Electronic Components Company, Matsushita Battery Industrial Company and Matsushita
Industrial Equipment Company.

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 The Bribery Scandal at Siemens AG

Exhibit I
Matsushita’s Five Year Financial Summary
For the Year Millions of yen, except per share information
Years Ended March 31 2001 2000 1999 1998 1997
Net Sales ¥ 7,681,561 ¥ 7,299,387 ¥7,640,119 ¥ 7,890,662 ¥7,675,912
Operating profit 188,404 159,054 193,684 337,558 373,901
Income before income taxes 100,735 218,605 202,293 355,624 332,125
Net income 41,500 99,709 24,246 99,347 137,853
Capital investment* ¥ 504,390 ¥ 337,953 ¥ 352,430 ¥ 473,606 ¥ 415,249
Depreciation* 345,268 342,887 359,465 355,030 340,285
R&D expenditures 543,804 525,557 499,986 480,539 434,874
At Year End
Long-term debt ¥ 541,541 ¥ 643,840 ¥ 709,084 ¥ 689,581 ¥ 923,474
Total assets 8,156,288 7,955,075 8,054,529 8,660,518 8,856,524
Stockholder‟s equity 3,772,680 3,684,329 3,642,151 3,853,682 3,841,762
Number of shares issued at
year-end (thousands) 2,079,573 2,062,671 2,,062,345 2,112,318 2,111,157
Stockholders 202,070 186,177 189,467 194,705 204,856
Employees:
Domestic 143,162 146,675 148,524 152,270 154,372
Overseas 149,628 143,773 133,629 123,692 116,279
Total 292,790 290,448 282,153 275,962 270,651
Per share data (Yen)
Net income per share:
Basic ¥ 19.96 ¥ 48.35 ¥ 11.60 ¥ 47.04 ¥ 65.39
Diluted 19.56 46.36 11.58 44.01 60.64
Cash dividends per share 12.50 14.00 12.50 13.00 12.50
Stockholders‟ equity per share ¥ 1,814.42 ¥ 1,786.39 ¥ 1,766.12 ¥ 1,824.39 ¥ 1,819.74

Ratios (%)
Operating profit/sales 2.5% 2.2% 2.5% 4.3% 4.9%
Income before income
taxes/sales 1.3 3.0 2.6 4.5 4.3
Net income/sales 0.5 1.4 0.3 1.3 1.8
Stockholders‟ equity/ total 46.3 46.3 45.2 44.5 43.4
assets
Notes:
1. In computing cash dividends per share, the number of shares at the end of the applicable period has been used.
2. U.S. dollar amounts are translated from yen at the rate of ¥125=$1, the approximate rate on the Tokyo Foreign
Exchange Market on March 30, 2001
3. Beginning in fiscal 2001, the Company adopted SFAS No. 115, “Accounting for Certain Investments in Debt and
Equity Securities,” and accordingly, prior year figures have been restated to reflect this change.
4. Fiscal 1999 and 1998 net income represent amounts after subtracting the impact of approximately ¥42.1 billion and
¥27.5 billion, respectively, attributable to adjustments of net deferred tax assets to reflect reductions in Japan‟s
corporate income tax rate.
Operating profit is net sales less cost of sales and selling, general and administrative expenses.
* Excluding intangibles

Source: Annual Report, 2001

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Enterprise Performance Management

While Matsushita claimed that the retirement plan was not compulsory, many
employees reported that they were continuously being forced to opt for the early
retirement plan. In addition, there were media reports of human rights violation at
some plants of Matsushita, where the employees were reportedly ill-treated and forced
to quit the organization.

‘Lifetime’ Employment at Japanese Corporations

All major companies in Japan including Matsushita followed the policy of „lifetime3‟
employment, which was a distinctive aspect of the Japanese style of management.
Under the policy, employees were hired directly from college without any
precondition of possessing necessary job-specific skills. Rather than hiring
experienced people, companies preferred to hire fresh recruits from college and mould
them into their culture. They were employed until the mandatory retirement age,
which varied between 55 to 65 years.
Moreover, leading corporations in Japan offered their retired employees the
opportunity to work for another ten years in their satellite offices4. Companies in
Japan never laid-off employees even in the worst economic conditions. They tackled
adverse situations by reducing overtime, stopping pay hikes and new recruitment. For
instance, none of the automobile companies in Japan resorted to layoffs though the
overall production declined by 8% in the late 1990s.
Although land and natural resources in Japan were scarce, there was abundance of
labor. With the rise in mass production in Japan after World War II, the concept of
lifetime employment started gaining popularity. Companies had to train their
employees on the job, and invest heavily in in-house education to make them efficient
and effective. This took several years. Therefore, once trained, the companies
expected the employees to remain with them until the mandatory retirement age.
According to analysts, lifetime employment in Japan was a result of the country‟s
distinct social and economic structure. Companies in Japan paid a major share of
compensation in the form of bonus which was given twice a year. Even during
recessionary periods, these companies continued to provide bonus by reducing the
amount of bonus to be paid or by deferring the payment for future years. This allowed
them to reduce their payroll. Moreover, companies never laid off their regular
employees as they had a huge number of temporary workers, mostly women. During
bad times, only these workers were laid off.
The Japanese companies focused more on their employees‟ welfare. A major portion
of equity shares of smaller Japanese companies were held by the „Keiretsu‟ which
included a group of large corporations including Hitachi, Matsushita, Mitsubishi,
Mitsui, Nissan, Toyota and Toshiba. The Keiretsu acted as „parents‟ for these smaller
companies. The objective of Keiretsu was not to earn high dividends, but to build a
long-term and strong relationship with these companies and other members of
Keiretsu. The parent company not only offered financial, technical and managerial

3
Some analysts felt that the word „lifetime‟ was misleading, because employment did not last
for a lifetime. People in Japan, after different levels of education, got into jobs which they
never changed. It was almost impossible to find a job in the middle of one‟s career or change
jobs in Japan.
4
Satellite offices were offices set up far from the major centers of a company and were all
linked through the satellite to the main office. These offices were mostly used for routine
back office jobs. The creation of satellite offices was based on the geographical separation of
front office and back office jobs.

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 The Bribery Scandal at Siemens AG

support, but also exchanged shares of stock, and provided engineers for joint product
development. The above factors including bonus payments, temporary workers and
Keiretsu system provided adequate „cushion‟ and Japanese companies therefore did
not resort to lay-offs of their permanent employees even during times of severe
financial crisis.
Another major reason for Japanese corporations following the policy of lifetime
employment was the country‟s tax system. The tax system favored huge lump sum
payments to employees at a mandatory retirement age. Any worker resigning before
the mandatory retirement age did not get any retirement allowance or at times got a
little fraction of the allowance. To be eligible for the retirement allowance, an
employee had to work for at least 15 years in the same company. Companies had to
create a separate fund for making retirement payments, around 40% of which was
exempted from corporate income tax. Thus, the tax system allowed the companies to
defer payment of a major portion of its wage package and get tax rebates on it. The
Japanese government also provided subsidies to companies in times of financial crisis
if they assured that they would not resort to layoffs. Moreover, layoffs in Japan had a
legal restriction.5 It was difficult for companies to layoff as they had to provide a
justifiable reason for doing so.
‘Lifetime’ Employment at Matsushita
Matsushita was founded by Konosuke Matsushita (Konosuke) in 1918, as Matsushita
Electric Housewares Manufacturing Works in Japan. From the beginning, Konosuke‟s
belief about employees was different from other employers. Generally, employers
considered it risky to share technical know-how with their employees as there was a
possibility of them passing on the information to their competitors. However,
Konosuke trusted his employees a lot. He believed that knowledgeable employees
would perform better and therefore believed in sharing all information with them.
After the Second World War, Matsushita expanded rapidly into different product
segments, namely, consumer electronics products, industrial electronics products and
components. The company also expanded its operations in several countries outside
Japan.
As a typical Japanese company, Matsushita also followed the Japanese style of
lifetime employment. The philosophy dates back to 1929 during the Showa
Depression6 when the company faced a major business crisis. When all other Japanese
companies resorted to lay-offs, Matsushita did not do so. Instead, Konosuke decided
to operate the plants for only half-a-day and during the other half, asked his workers
to sell the products from door-to-door, and clear off the piled-up inventories. By doing
so, the company managed to secure the jobs of its employees and also prevent losses.
This tradition continued for decades except in 1949 when the company implemented a
voluntary retirement scheme (VRS) due to bankruptcy. The company did not make
any changes in the terms of employment even during the oil crisis of the 1970s7 and
the strong yen recession8 of the 1980s.

5
Though layoffs were not legally prohibited, Japanese court precedents leave companies open
to lawsuits if they fire employees without cause. Dismissal of an employee required the
company to give a justifiable cause, such as absence without notification, poor work attitude,
personality defects, violent behavior, failure to observe the instructions of superiors, and so
on. Moreover, the Labor Standards Act of Japan required an employer to provide at least 30
days‟ notice or compensation worth at least 30 days‟ average wages.
6
In 1923, the Great Kanto Earthquake and the worldwide effects of the Great Depression
caused a chronic economic downturn known as the “Showa Depression” in Japan.
7
In 1973 and 1979, the oil prices in the world increased significantly by almost three times and
two times respectively. During the 1970s, oil prices rose significantly due to geopolitics and
nationalism. The 1973 embargo was due to retaliation of Arab countries, to the US support of
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Enterprise Performance Management

Another aspect closely associated with the lifetime employment policy followed by
Matsushita was the wage system based on seniority, i.e., the salaries and promotions
were solely based on the tenure of service of an employee with the company.
Matsushita focussed on in-house education of its employees, which was mainly in the
form of on-the-job-training and job rotation. The senior employees trained the juniors
and together strived to improve the performance and productivity of the company.
Matsushita‟s severance and retirement benefits covered all its employees. These
benefits were offered under two plans which included the unfunded lump-sum benefit
plan (also known as retirement allowance) and the contributory funded pension fund.
On retirement or termination of employment for reasons other than dismissal, all
employees were eligible for the unfunded lump-sum benefit. This amount was
determined on the basis of the present scale of pay and the tenure of service with the
company. About 40% of the retirement benefits were covered by the lump-sum
benefit plan.
The contributory funded pension plan was in accordance with the Japanese Welfare
Pension Insurance Law. The pension was paid to employees aged 55 years or more
with a minimum service period of 15 years. They enjoyed a higher interest of 7.5% on
the pension, which was guaranteed for 20 years after retirement. The interest offered
on the pension was significantly higher than the prevailing market interest rates of
about 2.5% - 3.5%.

Human Resource Management System Reforms

In the late 1990s, Matsushita was forced to restructure its liberal human resource
policies due to Japan‟s worst ever economic recession in the 1990s and the Asian
currency crisis of 1998. In 1998, the company introduced the Retirement Allowance
Advanced Payment System under which the new recruits were given pay packages
based on their preference. The new system was introduced because the attitude of
young workers in Japan was changing and they preferred to change jobs for better
opportunities.
The new system offered two options – Plan A and Plan B. Under Plan A, recruits
received significantly higher salaries (more than ¥100,000 per annum than Plan B).
However, these recruits had to forgo other benefits like stock sharing, housing loans,
company accommodation etc. and did not get any amount on retirement or
resignation. Under Plan B, the recruits got lower salaries than in Plan A, but got
additional benefits like company accommodation, stock options, free tickets to social
events and more. In both the plans, employees had to forgo the retirement allowance
(Refer Table I).

Israel, and in 1979, religious revolutionaries in Iran overthrew the Shah, cut off its oil
supplies and kept 52 Americans hostage for 444 days.
8
In September 1985, an agreement was reached between the Ministers of Finance and Central
Bank Governors of France, Germany, Japan, the US, and the UK to drive down the price of
the dollar. By 1985, the dollar had reached an all time high relative to many major currencies,
and the US was experiencing a large trade deficit. The coordinated efforts by these countries
resulted in a 30% decline in the dollar over the next two years. The Plaza Accord resulted in
the yen/dollar exchange rate, which at the time was $1 = ¥240, moving to ¥190 level in
January 1986 and then ¥120 level in December 1987. This rapid strengthening of the yen
adversely affected the performance of export industries in Japan, such as electric equipment
and steel. This period came to be known as the strong yen recession.

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 The Bribery Scandal at Siemens AG

Table I
Options of the Retirement Allowance Advanced Payment System
Item Plan A Plan B
All employees with
Specialists with a master's degree
Eligible Workers college degrees or
or better
better
Stock-sharing, employee savings
program, housing savings
Forfeited Benefits Retirement stipend
program, employee housing loans
and retirement stipend
¥240,000 to ¥660,000
Additional ¥350,000 to ¥880,000 ($3,000 to
($2,000 to $5,500) per
Compensation $7,400 at ¥120=$1.00) per year
year
Enrollment Last day of the second
First day of employment
Deadline year of employment
Source: www.jei.org (Matsushita Electrical Industrial Co. Ltd.)
In June 2000, Nakamura was appointed as the CEO of Matsushita. In November 2000,
he announced a three year medium-term management plan. One of the main
objectives of this plan was to increase the operating profit ratio to 5%. To achieve this
goal, Nakamura planned to introduce several cost cutting measures. However, at that
time, the management plan and the cost cutting measures did not include any lay-offs
or early retirement plans. Nakamura had said during that time, “The maintenance of
jobs is the duty of Japanese companies and dismissals do not suit Japan‟s climate. It is
necessary for us to revise inefficient parts; about 13,000 employees will be transferred
from unprofitable businesses to priority businesses, such as devices and services.”
In April 2001, Nakamura introduced a new personnel system. The new system aimed
at bringing about a change in the human resource policies at Matsushita and building a
new corporate culture. There were plans to develop a personnel management system
of international standards by integrating the benefits of the western-style of
management and the Japanese style of management. The new system aimed at
recognizing the value of its employees by providing better remuneration and
incentives, creating a climate to place more emphasis on assertiveness, creating an
open and transparent personnel management system, and achieving the merits of
multiple employment system. The new system also aimed at bringing about a change
in worker attitude through creativity and job accomplishment. The new personnel
system was based on two main principles – „People‟ form the foundation for
management; and „Developing people before developing products.‟ The new system
had three unique features including Management by all individual entrepreneurship,
which stated that every job, had its own value and that each individual is the manager
of his job. The second feature was known as Merit System, which involved fair
appraisal of people based on their performance and capabilities. The third feature was
known as People oriented management, which stressed on people and their
development.
Under the new personnel system, Nakamura launched five programs including E-
Challenge, Flexible Payment System (Upfront payment of retirement allowance),
Panasonic Spin-up Fund, Promoting „Exciting Works,‟ and Multiple Assessment
Program (Refer Table II).

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Enterprise Performance Management

Table II
Six Programs in the New Personnel System
Name of the
Description Results
Program
A system that enables applicants to apply for 700 applications
job opportunities offered by Matsushita‟s new
300 job transfers
E-Challenge or expanding businesses, or to demonstrate
their skills to attain a job transfer to their
desired workplace.
Payment system in which employees will be 52% of new
Flexible
given a choice of having their retirement employees chose
Payment
allowance and welfare benefits paid in this option
System
advance in addition to their yearly bonuses. (2001)
An in-house venture fund established to 210 applications
Panasonic discover and nurture employees with
Six companies
Spin-up Fund entrepreneurial spirit and to support their
established
ventures.
An initiative to establish a venue for direct Started in 2000
communication between the company
Promoting Total of seven
president and young employees in order to
„Exciting meetings held
facilitate thorough implementation of
Works‟
management policies and to create an open
corporate culture.
A system for a team leader and higher Evaluated 17,631
designation employees to have colleagues employees
Multiple
assess his/her performance. It intends to raise
Assessment
awareness of one‟s progress in performance
Program
and to increase understanding in the
assessment process.

Source: www.matsushita.co.jp
The new system emphasized the need to identify the various ways in which an
employee could improve his/her performance. Matsushita also made efforts to change
its employees‟ attitude. The objective was to make them more quality conscious and
enable them to understand the needs of their customers.
A new wage system was also introduced. Unlike the earlier wage system, which laid
emphasis on seniority, the new system laid emphasis on performance. Therefore, if the
company did well, employees with the same designation received different salaries,
based on their individual performance with the difference ranging from 30 to 50% of
the average amount. However, if the company was in a financial crisis, all
performance related incentives of employees were deferred.
In its efforts to reform the corporate climate across the company, Nakamura
established the Corporate Equal Partnership division in April 2001. The new division
aimed at building a corporate climate that recognized diversity and promoted
women‟s participation in management. As a part of the new system, the company
wanted to create a culture that could acknowledge the diverse values stated in
Matsushita‟s „mission statement‟ (Refer Exhibit II).

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 The Bribery Scandal at Siemens AG

Exhibit II
Matsushita’s Mission Statement
In order to become a truly global corporation, Matsushita Electric is making efforts
to construct a corporate climate that openly accepts diversity and recognizes
differences in values. As part of this, individuals are encouraged to freely and
openly display individualism and creativity, and the company is striving to become
a customer value-creation company by continuing to grow at both corporate and
individual levels.
Concepts of the Mission Statement:
Diversity: Recognizing each other‟s differing values and individuality.
Sociality: Utilizing our sense of values and experience as members of society in
management.
Creativity: Displaying creativity and specialization with spirit
Sensitivity: Increasing sensitivity to changes in the times and society, and taking
on the challenge of reform.
Productivity: Striving for optimum results, while recognizing that “time is a
limited management resources.”
Source: www.matsushita.jp.co

The Early Retirement Plan

In mid 2001, the financial problems of Matsushita increased significantly. Matsushita
posted a loss of ¥19.4 billion in the quarter ending June 2001 compared to ¥9.4 billion
profit for the same period in 2000. In spite of Nakamura‟s previous assurances, the
financial problems forced him to consider the option of reducing its workforce
through an early retirement plan. Nakamura announced that Matsushita would cut
down at least 3 to 4% of its global workforce through an early retirement plan that
would reduce the company‟s personnel expenses by ¥100 billion by the financial year
2002. As a part of its cost cutting initiatives, Nakamura also planned to lower the
interest rates paid on the welfare pension.
In July 2001, Nakamura announced an early retirement plan, which was open for all
80,000 employees working in the five major companies of the Matsushita group. The
company started soliciting applications in September 2001. To qualify for the
retirement plan, an employee had to be a labor union member, with ten or more years
of continuous employment and had to be less than 58 years old.
By December 2001, Matsushita received 10,000 applications, much beyond its
expectations. Out of the 10,000 applications, 15% employees were at the managerial-
level and above, while the remaining 85% were lower management employees and
workers. About 60% of the applications were from manufacturing, 2% from new
product/technology development and the remaining 38% were from marketing and
other areas.
Analysts felt that this response was due to the „generous‟ benefits offered by the
company to the employees opting for an early retirement. Apart from the regular
retirement allowance (Refer Exhibit III), Matsushita had announced a „Special Life
Plan Assistance Program‟ to provide an additional allowance to the employees who
opted for the plan.

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Enterprise Performance Management

Exhibit III
Retirement Benefits in Japanese Companies
Japanese companies generally determine the employee's retirement benefits based on
the length of service and the last year's monthly wage (which is determined by the
educational level and the position held). About 70 percent of all Japanese companies
use this methodology for calculating benefits. The larger companies use other
methods to calculate the retirement benefits of an employee. These firms use one of
the following three methods:

benefits that increase automatically with job tenure according to a preset rule (the
most common);

a merit-based system that accumulates points for job performance;

or an independent scale that defines benefits.

Retirement benefits are based on a worker's educational background and his position
within the company (Table 1). Even among workers with the same education level,
the position made a difference. High school graduates employed as managers, white-
collar workers and technicians earned 46 percent more in retirement benefits than high
school educated retirees who held non-professional positions.
Table 1: Benefits Provided by Employer at Mandatory
Retirement Age, 1997

Education Level

College High School High School Middle School

(professional) (professional) (nonprofessional) (nonprofessional)

Benefits
(millions ¥28.71 ¥19.69 ¥13.51 ¥11.92
of yen)

Equivalent
Number of
45.3 41.6 37.0 36.8
Months'
Pay

Note: Data for male workers age 45 or older with 20 or more years of employment.
Professional classification includes managers, clerical workers and technical
specialists.

Source: Ministry of Labor (www.jei.org)

The size of the firm also affects the range and volume of benefits (Table 2). For
instance, the average college graduate retiring from a firm employing more than 1,000
received ¥32.2 million ($268,300 at ¥120=$1.00) in benefits while his former
classmate departing a firm with only 30 to 99 workers received only ¥12.22 million
($101,700).

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Table 2: Retirement Benefits at Mandatory Retirement Age by Size of

Firm, 1997
Education Level (amount in millions of yen)
Firm Size by
College High School High School Middle School
No of
(professional) (professional) (nonprofessional) (nonprofessional)
Employees
1,000 or
32.19 23.01 16.31 14.43
more
300-999 23.93 17.36 13.32 12.30
100-299 20.45 15.24 10.08 8.26
30-99 12.22 11.26 7.35 7.41
Note: Data for male workers aged 45 or older with 20 or more years of employment.
Professional classification includes managers, clerical workers and technical
specialists.
Source: Ministry of Labor
Another factor that determines the size of the benefit is the cause of retirement (Table
3). Ranked according to the amount of benefits paid, from most lucrative to least,
reasons for retiring are: early forced retirement, reaching mandatory retirement age,
participation in a voluntary early retirement program, and leaving for personal
reasons. The system aimed at remunerating the worker who remained with the
company until asked to leave or who stayed until mandatory retirement. This creates
disadvantages for workers who change jobs frequently during their career.

Table 3: Reasons for Retiring: Comparing the Size of Benefits, 1997

Forced Out Mandatory Early Personal
Early Age Retirement Reasons
Benefits
(millions of ¥32.92 ¥28.71 ¥28.20 ¥17.50
yen)
Equivalent
Number 48.7 45.3 45.1 31.3
of Months' Pay
Note: Data for male workers age 45 or older with 20 or more years of employment.
Source: Ministry of Labor
Source: www.jei.org
If the employee was younger than 34 years and a labor union member, the additional
allowance was equivalent to eight months of wages (Refer Exhibit IV). For
employees between 35 to 45 years of age, the additional allowance was equivalent to
their twelve months wages. Employees between 45 to 50 years age got an additional
allowance of 32 months wages while employees between 50 to 55 years old got
equivalent to 40 months wages. As a part of the plan, Matsushita also offered a three
month paid leave for employees so that they could look out for a new job or acquire
new skills. A job-change support office was also created to inform the employees
about existing job vacancies.

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Exhibit IV
Wage System at Japanese Companies
In Japan, the monthly wage for employees comprised a base salary, overtime pay,
and the supplemental benefits comprising payments for commuting, housing and
family costs, a management premium and sales allowances. The wages were
determined on the basis of the age of the employee and his years of service with an
organization.
The employees also received bonus twice or thrice a year. The payment of bonuses
was not a legal requirement. Most of the companies paid bonuses in the summer
and the winter that totaled to 4-5 times of the monthly salary. Apart from the
regular bonus, some large companies also paid bonus based on the company‟s or
the employee‟s performance.
There were two basic standards for payment of wages in Japan. Firstly, the wage
had to be paid in cash, paid directly to the workers, and in lump-sum. It had to be
paid monthly on a regular date. The wages had to be equal or more than the
prescribed minimum wage. For instance, for Tokyo, the minimum wage, as of
October 2001, was fixed at ¥5,597 yen per day or ¥708 per hour.
However, in the late 1990s, Japanese companies were shifting to the annual salary
system based on the individual‟s annual performance, which was prevalent in the
European and US companies. The shift was mainly due to the slowdown in the
economy and the Asian financial crisis. Though the Japanese companies had
adopted the system, the association of the pay to the performance of the employee
was not as much as in the US companies. The Japanese companies were to still
adopt the system on a „full-scale‟.
In the European and the US companies, fresh graduates were put on a trial period
after hiring. After the successful completion of the probation period, these recruits
were assigned in managerial or specialized positions with an annual salary. Apart
from the annual salary that was paid on a monthly basis, these recruits also got a
performance-based bonus at the end of every year. The company also had the right
to withhold the bonus.
In the Japanese version of the above system, the pay was determined on the basis
of the position held by an employee. The companies also gave a performance based
bonus paid at fixed times during the fiscal year. Moreover, only a part of the bonus
was based on the performance of the employee. Therefore, every employee
received bonus at least once a year.

Source: IBS Center for Management Research.

Nakamura also planned to revise the interest rates on pension and opt for a cash
balance plan to reduce the retirement costs to the company. Under the cash balance
plan, interest was paid according to the prevailing market rate and the period of
payment was also reduced. Commenting on the rationale behind the proposed revision
in welfare pension, Fukushima Shinichi, Matsushita Group Manager, explained,
“Matsushita had established the welfare pension system at a time of good business
results in order to guarantee the livelihoods of employees in old age. It is a fact that
this system does not suit the present age.”

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 The Bribery Scandal at Siemens AG

In April 2002, Matsushita in its efforts to cut down the personnel costs further,
reduced the salary of the chairman and president by 30%. The monthly salaries of all
directors were reduced by 20% and the bonus for the directors was totally eliminated.

The Road Ahead

The early retirement plan received mixed reactions from the employees at Matsushita
and its subsidiaries. While some employees supported Nakamura‟s view and offered
to quit under the plan, there were others who refused to do so despite being
continuously counseled by the top management. One of the employees who had
worked for 30 years at Matsushita said, “An extra payment for retiring earlier than
mandatory age won‟t pay for my livelihood in the future. Increased production in
China and other countries means fewer jobs at home.”
The management at Matsushita maintained that early retirement was not compulsory
and it was completely left to the will of employees. Osamura, secretary general of the
labor union at Matsushita agreed saying, “The system has no numerical target and
certainly is not an encouragement to retire.” However, the reports of the actual
situation indicated something different. An employee at the Kansai plant of
Matsushita complained, “One of my co-workers was interviewed seven times. He said
that he was told by his boss that there was no work for him and that he should retire.”
Moreover, though the company had announced that only employees applying for the
plan would be considered for retirement, it was reported that at some departments all
employees were counseled and asked to opt for the retirement plan. One employee at
the Kansai plant reported that his boss interviewed all union members with over ten
years of experience and asked them to opt for retirement. Another employee
complained, “The company talks about the problem of redundancy, which is not the
case with my workshop.”
There were reports9 of human rights violation at Matsushita as well. The reports
revealed that Matsushita was continuously pressurizing its employees to opt for the
early retirement plan by treating them inhumanly at some plants which were planned
to be abandoned (Refer Exhibit V).
Exhibit V
Personnel Problems at Matsushita
At the personnel department at the Ibaragi plant in Osaka, Japan, which employed
around 3,000 employees, were regularly counseled to leave. Employees in their
forties and fifties, who refused to retire were ill-treated or forced to quit the
organization.
An employee was made to have eleven one-on-one interviews with the personnel
manager. Another employee, a 55-year-old, who had 10 million yen outstanding in
housing loans and loans for his two college students, could not but apply for
retirement, because he was told that there would be no job for him even if he
remained.
When the Japanese Communist Party (JCP) visited Matsushita's head office on
October 22, 2001, Matsushita had stated that retirement was not compulsory. But
the fact was that 70 percent of the ‟voluntary retirees‟ were in their fifties, and most
of them were in the manufacturing sections. It was obvious that the company aimed

9
According to an article in www.japan-press.co.jp

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Enterprise Performance Management

at driving out middle-aged blue-collar workers. Under the slogan „Going beyond
manufacturing,‟ Matsushita was pursuing the principle of the most optimal
production site on a global scale, and was transferring production to other countries
with cheap labor. TV production had been transferred from Ibaragi to Malaysia and
China.
The company's tenacious call on workers to quit was due to its withdrawal from
part of the domestic production, an aspect of industrial hollowing out. Not that the
company was short of funds; it had an internal reserve of 2.6 trillion yen. As a mark
of revolt, JCP distributed handbills in front of Matsushita‟s TV production plant,
and called on workers to fight back against the company attack. Encouraged by this
support, many workers at the Ibaragi plant, unlike at other Matsushita plants,
refused to quit and were carrying on with their struggle to retain their jobs.

Source: Adapted from www.japan-press.co.jp

However, with its continued focus on human resource management reforms and the
early retirement plan, Matsushita was successful in cutting costs. The company
reported an operating profit of ¥30.8 billion ($253 million) in the second quarter
ending September 2002 compared to operating loss of ¥36.3 billion ($297 million) in
September 2001. Matsushita also planned to reduce the salaries for the manager and
senior level employees by 1.5% in the financial year 2003. The company expected to
save about ¥50 billion during the financial year 2003 through these salary reductions.

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 The Bribery Scandal at Siemens AG

Additional Readings & References:

1. Labor Standards Law, www.jil.go.jp

2. Takahashi Hiroyuki, Trends in Japan’s Corporate Pension System, Japan Economic
Institute report, March 19, 1999.
3. Mikawa Tadahisa, 2001-1Q deficit urges Matsushita group to introduce early
retirement program, www.nikkeibp.com, July 23, 2001.
4. Hit by worldwide slowdown, Japanese electronics company Matsushita reports loss,
www.canoe.ca, July 31, 2001.
5. 3,000 Matsushita workers apply for early retirement, www.japantoday.com, October
26, 2001.
6. Hitachi and Matsushita slash full-year forecasts, slip deep into red, www.canoe.ca,
October 30, 2001.
7. Matsushita Announces Current Status of Employment Restructuring Initiatives,
www.matsushita.co.jp, December 07, 2001.
8. 10,000 workers at Matsushita opt for early retirement, mdn.mainichi.co.jp, December
7, 2001.
9. Matsushita Revises Generous Personnel System: Cuts into Sacred Ground with
Early Retirement Policy, www.jef.or.jp, January 01, 2002.
10. Irene M. Kunii, Matsushita's Long March: It still has a lot of restructuring ahead,
Business Week, April 1, 2002.
11. Kono Toyohiro, New Trends In Human Resource Management of Japanese
Corporations, ISFAM 2002 Conference, Australia.
12. Matsushita Electric, 'Father of lifetime employment' now wants 5,000 to quit,
www.japan-press.co.jp.
13. Human rights violations behind Matsushita Electric getting 10,000 workers to
retire, www.japan-press.co.jp.

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