The Revision of the Law Concerning the Stabilization of Employment of Older Persons

The Revised Law Concerning the Stabilization of Employment of Older Persons was enacted last year, prompted by the gradual increase in the age of eligibility for employee pensions to 65. In the past, Japanese companies were obligated to "make an effort" to promote the continued employment of older workers until the age of 65. From now on, however, companies will be required to gradually introduce a system over a 12-year period of transitional measures that will allow all employees who have reached retirement age to keep working until the age of 65 if they so wish. As April 2013, the month when the law goes into effect, approaches, the HR department of every company in Japan is scrambling to update the company's regulations and address all the other issues the revised law has raised.

Human resource management in American and European companies is based on "tasks," whereas it is based on "ability" in Japanese companies. In other words, Japanese human resource management is rooted in the philosophy of meritocracy, in which work or tasks are assigned according to the abilities of individual workers. One's abilities grow with experience. And experience is usually accumulated over time. Athletes are a good example of this, although some of their abilities decline with age. Japanese companies that really do assign work based on ability have no need to panic, despite the new requirement to extend employment to the age of 65. All they need to do is assign the right people to the right places, based on the individual abilities older workers have when they are in their sixties.

Human Resource Management in Japanese Companies

What is really causing the HR departments of Japanese companies to panic is their reluctance to retain workers past the traditional retirement age. I once had a discussion with the young HR managers of a company around the theme of "What would happen to the company if the mandatory retirement system were abolished?" Most of the participants were of the opinion that "The abolishment of the mandatory retirement age would cause problems for the company." The reason cited for this fear by almost everyone was, "If the retirement age were abolished, the company would be inconvenienced by the continued presence of incompetent personnel."

Until now, Japanese companies have given lip service to the merit system while managing human resources based on "assumed abilities"-the abilities workers are assumed to possess-without gaining an accurate understanding of the abilities of each employee. To start with, the definition for the "ability to do the work" is imprecise. Relatively simple skills that can be measured objectively, such as the number of words one can type per minute, as well as advanced, complex factors such as agenda setting, problem-solving and execution are all required of employees as part of their "ability to do the work." The definitions for these required abilities, however, are vague and lack clear standards of measurement. Thus, some kind of "surrogate variable" is needed to gauge ability.

In the past, the "assumed ability standard," or the idea that the development of ability is determined by age and length of service, has been invoked due to the difficulty of formulating a practical definition for the "ability" to perform a job, despite the ability-based evaluation system that has been adopted by the great majority of Japanese companies. While the fictional ability the "wisdom of age" is thought to uniformly bestow on older workers has limited dismissals, it has also justified the establishment of a mandatory retirement age for all employees at age 60. To take the point to its extreme, our human resource management system and, by extension, our social system up to this point in time have been determined based on the idea that the company will "tolerate" employees until the age of retirement, regardless of whether or not they possess any actual skills. As the young HR managers mentioned earlier said, companies "can't tolerate anymore."

Changes in Personnel Systems

This does not mean that companies have not done anything to plan for these kinds of changes. Since the 1990s, Japanese companies have emphasized the importance of results in employee evaluations and started to evaluate employees based on their abilities, competency and other job performance factors. The difficulty of defining competency, however, has led to the use of "attitude" and "comportment" during the performance of job duties as a new form of the assumed ability standard. This boils down to a subjective evaluation of whether the employee "works hard (and works overtime until late at night)." There are apparently some companies that even have employees' overtime hours entered on their behavior evaluation sheets-the height of nonsense. This causes employees to advertise their overtime work as a sign of achievement and allows the evaluator to ignore his or her own poor time management skills.

Linking performance to subjective evaluations encourages employees to pander to the personal opinions of their supervisors rather than make a contribution to the company. In today's organizations with their emphasis on diversity, such evaluations, based on "attitude" and "comportment," suppress the ability of employees to produce innovations.

Is the Mandatory Retirement System Still Necessary?

One could then argue that the mandatory retirement system should be banned altogether. I realize, of course, that this sounds like a crazy and socially disruptive idea in Japan today. Once the mandatory retirement system can no longer be enforced, however, companies will get serious about evaluating the abilities of individual employees. When employees lack the necessary skills, the company will either train them in earnest or consider dismissing them for unsatisfactory performance. Meanwhile, capable employees will receive the recognition they deserve.

Of course, many conflicts would arise between labor and management during the process. Our current way of thinking about dismissal became entrenched around the 1970s. The economic and social situation of Japan today is vastly different from how it was then. A ban on the mandatory retirement system could trigger a discussion involving the judicial, legislative and administrative bodies of government, and society as a whole, about the rules for dismissal that are needed today, thus leading to the conception of a new form of human resource management in Japan.