Asia and Performance-Based Pay

For companies in the US and other industrialized Western countries, performance-based pay systems have long been the undisputed approach to take in compensation.

However old a concept this is for us, it was new to Japanese and other Asian countries. Lured by the strength of the US economy and its corporate successes, companies like Fujitsu championed the pay-for-performance approach.

For eight years, Fujitsu struggled to make its performance-based pay system work -- but they finally tossed it out. Why?

Pay increases and promotions were based upon how well employees met self-established goals. So employees:

  • set only easily-achievable, non-challenging goals
  • set short-term goals, resulting in a failure to produce high-profit-yielding products
  • neglected after-sale customer service because it was seldom factored into performance reviews
  • focused on personal goals rather than team goals, leaving co-workers to carry the load

The easy conclusion is the one reached by Fujitsu's president: performance-based pay is a poor fit for Japanese business culture. But is that really the case? We wonder if the problems experienced by Fujitsu are all that different from the problems that plague some American companies: poor system implementation and management.