A broker looks at an electronic board displaying the activity of the yen against the U.S. dollar at a foreign exchange brokerage in Tokyo, Japan. (Photographer: Haruyoshi Yamaguchi/Bloomberg News)

Nomura to Switch to Merit-Based Pay for Japan-Based Brokers

(Bloomberg) -- Nomura Holdings Inc. will introduce a merit-based pay system at its domestic securities unit next year, moving away from the long-standing Japanese practice of rewarding staff mostly according to their age.

Under the new structure, employees at Nomura Securities Co. will see their salaries and bonuses “more appropriately reflect” their job responsibilities and performance, irrespective of age or tenure, Japan’s biggest brokerage said in a statement Tuesday.

Nomura’s move could be a welcome sign for policy makers who have been pushing for a more flexible job market to spur wages and inflation. Japan has been slow to ditch a tradition of lifetime employment that assures workers of job security while providing only modest pay rises tied to their seniority.

Firms like Nomura need to attract talent to compete with global rivals and high-tech firms entering the financial business, said Toshihiro Nagahama, executive chief economist at Dai-ichi Life Research Institute. “Japanese companies may struggle to find the right people unless they shift as much as possible away from the seniority-based lifetime employment system,” he said.

Competition for skilled workers is intensifying in Japan, where the labor market is the tightest it’s been in decades. There are currently 163 positions available for every 100 job seekers, Labor Ministry data show.

Tokyo-based Nomura’s new policy will involve bolstering its recruiting program for new graduates as well as actively hiring people in mid-career, it said. The planned changes will take effect April 2020. The firm will complete details through negotiations between workers and management.

Some companies in Japan have experimented with merit-based remuneration in the past, with mixed success. Workers and labor unions have often objected to any changes that could upset the stability that the current system provides.

Japan’s employment practices have been evolving since the 1990s, but only at a “quite moderate pace,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. “The truth is that the seniority-based pay policy remains deeply rooted at many companies here.”

Nomura is also looking to shift its retirement benefit system toward a defined contribution pension plan, it said.

The financial group didn’t say whether the revamp would cut costs. Chief Executive Officer Koji Nagai has been looking for ways to trim expenses and improve efficiency of daily operations through his so-called “Waterline Project” introduced about two years ago.

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