In addition, bonuses in Japan are much less volatile than in the US. Bonuses in Japan shift by 5%-10% a year, while they could differ by 100% between years in the US. At the extremes, the gap between senior executive pay and the income of the lowest ranked executives is also much wider in the US.
The principal reason underpinning such profound differences is the very different role played by the HR departments. In a US investment bank, the HR department is rather weak. It signs people on and off, pays the salary cheques and is treated with scarcely disguised condescension by hot-shot, revenue-generating bankers. In US banks, compensation decisions are made by senior business managers in an atmosphere of great secrecy, based ideally on contribution to company profitability but also on company politics.
In contrast, at Nomura, staff members are not paid based on performance û in other words, according to the amount of new business they have brought in. (Some individuals might be, but itÆs not systematic.) At Nomura, a typical salary negotiation would take place within a well-recognised ball park, based on experience, precedent and position. And the essential negotiation for the banker would not be with his line manager, but with an HR manager. The latter might have agreed a target with the banker at the beginning of the year, and the bankerÆs progress towards that target would be assessed. Line managersÆ comments would be taken into account, but mediated by the HR manager. In fact, this is a very similar system to the one employed by continental European firms. At the end of the meeting, the bankerÆs bonus will be set in such a way as to maintain harmony with his colleagues.
The HR department in Japan has great power, says Miki Tanikawa, an organisational management specialist in Tokyo, if only because it lies at the nexus of information.
ôHR managers in Japan know everything about everyone. They construct rotation, compensation and promotion criteria systems. They keep detailed files on employees all the way through their careers, and their support is needed when individuals are put on the fast track. They are not formally responsible for strategy, but their information and organisational advantage means that they have considerable input,ö explains Tanikawa.
Adds Yasuo Kamai, a former manager at Nissan: ôThe HR departmentÆs power tends to be self-perpetuating, because they steal the best new recruits for themselves!" Kamai says that the root of the HR departmentÆs power comes at the recruiting stage, when new employees are sent to their new posts as determined by the HR department.
Tanikawa adds that the HR department might also come up with a strategy for creating a younger generation of leaders. Such decisions will have huge repercussions on who gets promoted, and a whole group of middle managers, regarded as too old, could be pushed aside.
Tanikawa explains that ôone of the reasons HR managers have so much power is that Japanese firms are quite feudal. Staff members are loyal only to their direct boss, or ex-bosses. Divisions may not talk to each other. Binding everything together across the company is the HR department.ö
Kamai recalls one incident showing how closed to outside influences Japanese departments are. Soon after Carlos Ghosn arrived to take up the reins of Nissan in 1999, he hired a PR manager from JPMorgan to the top PR post. ôBut people couldnÆt accept that somebody from a foreign firm had been parachuted in to lead them. She failed to get their loyalty, and only lasted a year,ö recalls Kamai.
US and Japanese firms also have different incentives. One possible reason why only one ex-Lehman banker, Jasjit Bhattal, was appointed to the second highest Nomura board, the global wholesale committee (which is second to the executive committee) in the pre-Christmas reshuffle last year, is that board positions are traditionally a reward for executives who have been slaving away for 30 years with relatively low compensation. Executive board members traditionally donÆt do much work and enjoy lavish benefits.
ôExisting board members will likely look at the Lehman guys, who are getting paid top dollars and are natural candidates for the board in terms of seniority and competence, and feel that they havenÆt yet paid their dues to the company,ö says Tanikawa.
For the time being, the foreign bankers at Lehman wonÆt have to worry. The top 250 of them that were acquired by Nomura have got guaranteed bonuses until March 2, 2010. After that, they had better start to make friends with their local HR manager.
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