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

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 Person-based

Stock-based

Market-based

Flow-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 1002140072
DENİSA ULUYAZI 1002140050