TOKYO, October 12, 2023 – The median salary increases in Japan have hit 2.6% to 3.9% in 2023, according to a Salary Increase pulse survey conducted by WTW (NASDAQ: WTW), a leading global advisory, broking and solutions company. This is the first significant pay increase in a country where annual salary increases have trended between 2% and 2.5% over the last few years based on WTW data. Salary budgets for Japanese employees are expected to remain high in 2024 as employers respond to market expectations and pressure to improve employee pay levels.
Among the 169 Japan-based companies that participated in the survey, local Japanese companies have implemented salary increases by 2.8% to 3.9%, higher than foreign-headquartered companies operating in Japan (i.e., foreign-affiliated companies) at 2.6% to 2.9% this year. Salary increases were also higher for non-managerial positions compared with managerial positions at both local and foreign-affiliated companies (2.9% to 3.9% for non-managerial positions, compared with 2.6% to 2.8% for managerial positions).
Notably, the top 10% (90th percentile) of local companies have rolled out more significant salary increases, going as high as 6.1% for managerial positions and 7.0% for non-managerial positions. In comparison, foreign-affiliated companies have implemented less drastic wage hikes, with the top 10% of companies implementing 3.6% and 4.0% salary increases for managerial and non-manager employees respectively.
| Company type | Employee level | 10%ile | 25%ile | 50%ile(Median) | 75%ile | 90%ile | Mean |
|---|---|---|---|---|---|---|---|
| Japanese | Managers | 0.0% | 1.4% | 2.8% | 4.0% | 6.1% | 3.1% |
|
Non-Manager Employees |
1.7% | 2.9% | 3.9% | 5.1% | 7.0% | 4.4% | |
| Foreign-Affiliated Companies | Managers | 1.9% | 2.3% | 2.6% | 3.1% | 3.6% | 2.8% |
| Non-Manager Employees | 1.9% | 2.4% | 2.9% | 3.2% | 4.0% | 2.8% |
Sumio Morita, Head of Work & Rewards Japan, WTW said: “The Japanese market has experienced years of weak economic growth and periods of deflation. However, increased cost of living and a heightened demand for top-tier talents in a post-pandemic operating environment have prompted companies to evaluate the competitiveness and sustainability of salaries they offer to their employees. The improvement in salary levels for the first time in years suggests an enhanced focus on responding to market expectations and retaining top-tier talent, which are critical factors in enabling businesses to achieve strong performance in the long term.”
While most companies implemented some increases in their salary budgets in 2023, key differences on the approaches used to implement salary increases were observed between local Japanese and foreign-affiliated companies.
According to the survey, 92% of foreign-affiliated companies and 88% of local Japanese companies have implemented salary increase based on individual employee’s performance (merit increases). However, 75% of local companies also adopted a unique base-up approach, where base salaries of all employees are increased at a standardised rate regardless of individual performance. This approach was only used by 12% of foreign-affiliated companies.
Source: WTW Salary Pulse Survey - Japan
When it comes to salary increases for non-managers employees such as the junior staff, 11% of local companies and 5% of foreign-affiliated companies also increased their salaries as a result of changes in their HR and reward policies. While this approach is only used by a small number of companies in 2023, about 30% of local companies and 10% of foreign-affiliated companies are either currently reviewing or planning to review their HR and reward policies and frameworks, a sign that Japanese companies are more likely to consider making structural changes to their HR system which would impact pay increases in 2024.
Moving forward, companies that implemented higher salary increases in 2023 have indicated that they still plan to offer employees salary rises in 2024.
Among those companies that have increased their salaries by over 3% (but less than 4%) in 2023:
Similarly, companies that have implemented salary increases of 2% or more (but less than 3%) in 2023:
“Through improving salary increases, companies can maintain stronger talent pools and enhance access to top-tier talent which are critical in allowing businesses to achieve strong performance over the mid-to-long term. Our survey tells us that some Japanese companies have taken extra steps in providing increases that are well above the market median at rates as high as 7% for non-manager employees. This trend is likely to continue in 2024.
“Going forward, a key challenge for companies will be to ensure their compensation offerings remain market competitive and compelling to employees as the salary increase momentum is likely to continue in the coming years. With that in mind, the HR team has an important role to play and implement a holistic reward system that is not only constantly reviewed, but also well communicated with and understood by their employees,” added Sumio.
The Japan Salary Pulse survey was conducted between May and June in 2023 among 169 companies with operations in Japan, of which 79 are listed on the prime market segment of the Tokyo Stock Exchange. Respondents were asked key questions around their actual salary increase budgets for 2023 and projected salary increases in 2024, in addition to the various approaches companies are taking to increase salary levels.
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