A job at a J-bank might no longer mean a job for life as Japan’s banks turn to western-style contracts.
In a recent interview with the Financial Times, Kenichi Watanabe, Nomura’s chief executive, revealed that more than half of the firm’s 1,600 investment banking staff in Japan had agreed to contracts that would cut their basic pay and make them easier to sack, in exchange for potentially higher performance-related bonuses.
And Nomura isn’t the only Japanese bank trying to westernize some of its contracts. Yoshiki Kumazawa, a consultant in the front office division at Morgan McKinley Tokyo, says a number of banks in Japan have introduced western-style contracts with varying degrees of take up by their employees.
So why the shift? Mika Nomura, head of training and development for Japan at Hays Specialist Recruitment, says the answer to that is primarily cost-cutting. “Banks are trying to minimize costs, a lot of which are accounted for by base salaries. So in this kind of market where people aren’t getting much of a bonus, these contracts are an option.”
Kumazawa says the main difference between these contracts and the more traditional Japanese ones is that compensation is based on performance rather than seniority.
“The appeal to some bankers is that they reap the rewards of all their hard work and long hours a lot sooner rather than seeing gradual increments in pay each year until they retire,” he adds.
In particular, Kumazawa says front office roles are suited to performance-driven contracts as these types of arrangements are aimed at incentivising individuals to drive company profits.
The contracts might not be best suited for roles that don’t directly drive profits, however, says Nomura. “It’s not ideal for people in back office and IT roles as they can’t always directly show their benefit to the company,” she says.