Another important practice in the reward system of the Japanese organization is the customary payment of a sizable semiannual bonus to all employees. The bonus is often equivalent to three months' regular pay, so each employee usually receives eighteen months' pay during a year's period. The bonus is usually paid early in summer for the bon festival and again at year-end to celebrate the coming new year.
Both periods are very festive seasons in Japanese society. The first three or even seven days of the new year are well known as the nation's biggest holidays, and bon is the so-called Buddhist All Souls' Day. It is said that during the bon festival the souls of all ancestors come back to the family domicile. Every Buddhist family is supposed to burn a welcome fire or prepare a lantern bonfire for the departed spirits of its ancestors, and then go to the cemetery and lay wreaths on the graves. Nowadays, the custom of the welcome fire and the lantern bonfire is diminishing in urban areas, but big crowds of people still visit the graveyards and lay wreaths there in summertime.
During both periods, Japan is overcome by a festive atmosphere and people take days off. In the first three to five days of the new year, almost all government offices and all companies stop their business activities, and in the bon period many small 'companies, which recruit most of their workforces from the countryside, stop production for about a week because the employees return to their hometowns to see their parents and relatives and to visit the graves of their ancestors.
The payment of a sum of money to employees on these two occasions stems from the practice of the merchant class in the Tokugawa era. The merchants and artisans took holidays only twice annually—during the bon festival and the New Year's celebration—and did not have Sundays off. There was no concept of a Sabbath to be observed every seven days. Accordingly, employees were given holidays and temporarily released from the daily hard work during the two seasons—the New Year and bon. The owner-merchant paid employees a certain amount of money as a special allowance for their home leave. This practice was particularly beneficial to the apprentices, who were not paid at all for the work but were just given lodging and food within the merchant compound. Gaining job know-how was their remuneration.
Today, in the modern industrial society, this payment of a special holiday allowance is called a "bonus." The Japanese have a popular expression, "It's like bon and New Year's Day coming at the same time," which they use to refer to any wonderful event or occasion. This would probably be expressed in the West as, "It's like Christmas and your birthday rolled into one." Bonus time is definitely such an occasion.
In contrast to Western firms, a Japanese company or government office pays its employees a bonus for bon and the New Year regardless of whether it is making a profit. Thus the bonus has become very much a part of the regular reward system. Employees expect it and organize their living standard around it. Any special purchase, such as a car or expensive furniture, is usually delayed until bonus season. Since the size of a bonus is a determining factor in department store sales and bookings at vacation resorts, the nation as a whole watches the bonus scale of industries as an exciting indicator of economic trends.
The bonus payment for each six months is the topic of extensive negotiation with the unions. While the union demands more than the total amount of money to be allotted for bonuses, management is interested in assigning specific sums to each individual with the intention of making the bonus a way of rewarding a particularly productive or energetic worker. However, in practice, no large difference exists in the amounts received by the same annual "class" of employees. Clear differences exist only between the hierarchical ranks. But the small difference within the same rank is not negligible, as noted earlier. The difference indicates the differential of appreciation by the management, and the accumulation of such small differences will bring about more favorable advancement in the future. The bonus is a regular, expected gift from the paternalistic management to its employees, but at the same time it is a notice of appreciation for individual contribution.
The Selective Retirement System
One more aspect of the compensation programs must be noted to fully understand the Japanese way of managing human resources. This is the payment of a retirement allowance. The basic aim of the retirement allowance is to reward an employee for his length of service with the company and at the same time to discourage or even penalize voluntary retirement at an early date. Apparently, the objective is to perfect the lifetime employment system.
On the other hand, the company, by discharging older workers, has to regenerate its vitality and alleviate its increased financial burden. The retirement age has thus been set at 55 years for employees in most Japanese firms. This age limit is usually strictly enforced; but when older employees are retained for some reason, they are classified as shokutaku (non-regular staff) and are paid less than they used to be as regular staff members. Before World War II, this retirement system functioned quite adequately: every retiree could lead a modest postretirement life on his allowance. However, the economic environment has changed greatly in the postwar period. In the affluent Japanese society of today, average longevity has increased. It was 46.9 (male) and 49.6 (female) in 1935 but surpassed Sweden to become first in the world in 1978 with averages of 73 (male) and 78.3 (female). The life expectancy of Japanese people is now reaching 80.
Inflation in currency as well as longevity made it extremely difficult for an individual to retire at 55. Thus, extension of the age limit was put forward as a serious consideration in management-labor collective bargaining. Some companies now set the age limit at 57, some at 58, and some at 60. Many others are currently revising their retirement system, and it is expected that within a few years more than half of all Japanese firms will set the retirement age limit at 60 for their employees.
Let us now look at the other side. When the first oil crisis occurred in 1973, many firms had to reduce the number of aging workers quickly, like a ship in a storm throwing its heavy freight into the sea. But, as is clear from the paternalistic nature of the Japanese organization, management has a grave responsibility to the workers who are discharged before the end of their useful work life. It is the giri (social duty) of the company to make sure that the discharged worker can enjoy a secure life after leaving the company. Thus in 1973 management called for volunteers to leave the company and offered them a handsome severance allowance in addition to their regular retirement pay. Since then, quite a few companies have made voluntary retirement part of their personnel program, allowing workers to quit and get a second job at an earlier age—45, 48, 50, or whenever they choose to withdraw from the lifetime employment program. This is the selective retirement system. To avoid losing good, qualified workers, these companies maintain a counseling office which is charged with the task of persuading better employees to remain and of "patting the shoulder of" those it deems preferable for early retirement. This patting on the shoulder, kata-tataki, is a popular word in personnel administration and means essentially a "recommendation for retirement."
One large textile company recently introduced a selective retirement system effective from the age of 40. This is probably the lowest age that a Japanese employee can volunteer for early retirement. Management offers to these volunteers: