Lord’s Payer: Riordan in Japan
Globalization has many different effects on the world, the nations within it, and the individual organizations and people that populate these nations. Many of the effects and challenges of globalization work in indirect ways, and these are the effects that are quite often areas of ethical concern when it comes to international business, however there are also many direct considerations that businesses must take into account when they are globalizing or engaging in any multinational/international endeavors. The day-to-day operations and the minute details of international business have immense legal and ethical implications that extend well beyond simply trying to conduct business in a way that benefits all organizations and nations involved. Careful consideration of even the most innocuous-seeming of business actions and transactions renders these complications strikingly clear.
Compensation for employees relocated to a foreign country is one of the issues that presents complications when businesses engage in international operations. Not only must the compensation provided remain ethically fair and usually legally compliant with the compensation provided to domestic employees and the locality in which the company is based, but the laws and ethical constraints or requirements on compensation pertaining to the country(ies) to which employees are relocated must also be carefully followed. In addition, the fact that an employee and potentially their family will have to leave their native country and all of the people and places they know warrants some extra consideration.
For Riordan and Robert Lord, this means developing a clear and comprehensive understanding of Japanese labor laws and labor relations as well as taking into account the general principles and practices of the company when determining a compensation plan for the expatriate. Japanese labor laws and labor relations vary markedly from the United States in certain respects, and maintaining consistency with Riordan’s internal plans while maintaining compliance with all other requirements can be difficult. The following pages present an overview of certain relevant issues in this situation, with the implications of these situations for Robert Lord and for Riordan in terms of their responsibilities and their rights. What this means in terms of the general context of the Japanese economy and that nation’s basic view of labor, labor unions, and proper compensation are also given consideration.
Comparison with Japanese Average Salary
Robert Lord receives a salary of $140,000 in the United States, in addition to the other standard benefits that Riordan gives its employees: health and dental insurance, life insurance, paid vacations and holidays (including an extra annual return visit to the United States for foreign-relocated employees that is not part of normal vacation time), and a 401(k) plan with company matching contributions (Case, n.d.). Riordan also offers a housing allowance to foreign employees and a salary bonus of 25% of the base pay, meaning Robert Lord’s salary would increase by $35,000 to $175,000, before any additional bonuses or the significant benefits provided are taken into consideration (Case, n.d.).
In order to determine if this compensation is equitable when compared to Japanese requirements and standards, it is necessary not only to determine the average salary for a comparable age and seniority level in Japan, but the benefits packages and expectations that are part of Japanese compensation plans must also be examined. According to the information currently available, a salary of $175,000 is higher than the average salary of workers/managers with more than twenty years of seniority at their companies or industries in Japan, and thus on an initial comparison it would appear that Lord is being compensated at a higher rate than a comparable Japanese individual or position (Average Salary Survey, 2012). This is equitable, given the fact that Lord is being asked to relocate to a foreign country and the average Japanese salary is (obviously) based primarily on the salaries of those living the Japan as their native country, and indeed the added compensation Lord will receive puts him about 25% higher than would be expected in Japan for a supervisor of his seniority — in keeping with Riordan’s foreign compensation principles (Average Salary Survey, 2012; Case, n.d.).
The case of benefits is somewhat more complex, as these cannot always be compared directly nor would it necessarily be reasonable to do so. The economic situation in Japan makes certain benefits programs offered to Japanese workers very shaky, and at the same time there is somewhat less company responsibility for certain areas of benefit provision (Seeman, 2004). Overall, Lord’s benefits will not put him drastically out of step with the Japanese or with individuals holding similar U.S.-based Riordan positions, but each must be discussed separately.
Like most developed countries outside the United States, Japan offers a “universal” healthcare system as part of a comprehensive system of social insurance, which also includes worker’s compensation-type programs and other government-mandated and tax- or fee-funded programs (Seeman, 2004). The cost structure of providing health and dental insurance might change for Riordan, then, but the relative value of these benefits would remain the same. Japan also has a national pension system as well as private options, however most of these are struggling under an aging Japanese population and ongoing economic shrinkage (Seeman, 2004). There is no reason Lord should not be able to keep his current 401(k), and while this would make his compensation somewhat out of step with Japanese counterparts anything else would be an effective reduction in compensation. Finally, the housing allowance that Lord will receive does put him in a somewhat enviable position in relation to similar Japanese supervisors, as housing can be quite expensive in Japan, however the requirement of foreign relocation is again worth some extra consideration.
In sum, Lord would receive direct salary approximately 25% higher than a comparable Japanese national, and would also see higher benefits in terms of his pension plan and a drastic reduction in his cost of living (as a result of the housing allowance). This is not entirely equitable with the costs an average Japanese national would incur, especially when it comes to housing, however the Japanese national is afforded the comfort of living in their native country, in proximity to their family and friends. This trade-off makes Lord’s compensation quite equitable.
Pay Difference in the United States
From the information provided in the case, Lord’s exact compensation in the coming year(s) cannot be calculated, as his performance review and the base percentage or cash amount available for raises is not provided (Case, n.d.). He would almost certainly be receiving the top raises and bonuses available, however — if he has been selected as a Director of Plant Operations for an overseas facility it is reasonable to assume that his performance review would have been “exceeds expectations” — and thus his $140,000 salary would have been increased at least some degree in the coming years (Case, n.d.). A five-percent raise, which is really only a two-percent raise given standard three-percent inflation, would increase his salary to $147,000; a ten-percent (effective seven-percent) raise would lead to a salary of $154,000 (Case, n.d.). Because Riordan also explicitly strives to individualize compensation in a manner that is truly performance-based and works to not only retain but encourage top talent, it is very reasonable to assume that Lord would have been given a significant bonus or other consideration if moved to a similar position in the United States (Case, n.d.).
Even after taking all of this into account, it is clear that Lord’s compensation after relocation to Japan is still significantly higher than if he were to remain in the United States. The added salary and housing compensation would almost certainly make this an enviable position for most people at Riordan. As both compensation for leaving his native country and as an explicit reward for a job well done (in keeping with Riordan’s policies), however, this is still equitable compensation.
Influence of Trade Unions on Compensation and Social Contract Perception
Japanese culture and values are markedly different form those of the United States and the West generally, and this has numerous significant implications on the general atmosphere of labor relations in the country and on the impact that labor unions have had. Unions are perceived differently and indeed function differently in Japan when compared to the United States, and general social concerns as well as already-present views of the social contract between employers and employees means unions had, in many respects, less ground to cover than in the United States U.S. LOC, 2012; Sidorenko, 1999). Despite all of this, union membership in Japan is quite even though numbers have been declining in more recent years (in keeping with an international trend), and thus an examination of their influence in the country is important in making sure Lord’s compensation will be viewed as equitable.
Unions came to power in Japan during roughly the same period as they did in the United States, with true union strength emerging in the 1940s after the close of the war (U.S. LCO, 2012). Certain large-scale goals involving working conditions and minimum wages were issues in these initial years, however the different manner in which Japanese unions function and the ways in which they are perceived due to practical and values-based differences in Japanese culture means they vary considerably in their history, influence, and impact after this point (U.S. LOC, 2012). Interestingly, though unions have less direct influence in Japan, labor relations in that country are much closer to what unions in the United States typically push for.
Japanese culture has long placed an emphasis on authority and loyalty, and this has extended to the corporate and business world in no small measure. Though employment contracts are typically limited to one year, they are renewed each year and there is an informal understanding that employee loyalty to the company will be rewarded with ongoing employment — loyalty from the employer, in other words (U.S. LOC, 2012; Sidorenko, 1999). Many of the social insurance and benefit programs that are matters of Japanese national policy did arise in the same period as labor unions came into increasing power, and there is no doubt that these trends were related, however it is not truly accurate to say that unions actually influenced the government in this regard, but rather that both were the result of a changing understanding and perception of the social contract (U.S. LOC, 2012).
The rather unique way in which most Japanese labor unions operate also makes them highly different in the degree to which they can and do affect national policy and perspectives. Though there are national unions in Japan, these do not work as the negotiating and regulatory bodies that they do in the United States, but rather serve as umbrellas for industry- and trade-specific federations and are purely political bodies (Sidorenko, 1999). These federations are themselves made up of individual company or enterprise unions, and it is these lowest-level enterprise unions that negotiate with management and serve to monitor the labor relations at a given company (Sidorenko, 1999). Though unions are interconnected, then, there is a large degree of independence in the way they function.
This ultimately has very little impact on the compensation transition for Lord when he relocates to Japan. Clearly, he will not be part of a Japanese labor union when he arrives; it is possible that his Japanese workers will eventually form one (though even this is unlikely given the trend of new firms in Japan not unionizing), but this is not a concern in this case (U.S. LOC, 2012; Case, n.d.). In addition, the evidence shows no statistically significant wage or salary differentiation between union and non-union laborers in Japan, unlike in the United States, and thus less incentive for any union activity to take place (U.S. LOC, 2012; Sidorenko, 1999). The social contract for employer fairness and loyalty coupled with employee commitment to the company and to hard work that is goal oriented eliminates much of the need for unions as defined in the United States, thus a comparison is all but meaningless.
Robert Lord should (and likely does) consider himself fortunate for the generous compensation package he will be receiving as the new Director of Plant Operations for Riordan’s endeavors in Japan. Though considerably higher than his counterparts in the United States and in his soon-to-be adopted country, this compensation package is fair in light of the scarifices Lord will have to make along with this move and as recognition for the services he has rendered to Riordan. An examination of customs, values, and practices to make sure this compensation package is warranted is still quite useful, but in this case does not lead to any recommendations for changes.
Average Salary Survey. (2012). Average salary in Japan. Accessed 12 May 2012. http://www.averagesalarysurvey.com/article/average-salary-in-japan/15224137.aspx
Seeman, R. (2004). Labor law. Accessed 12 May 2012. http://www.japanlaw.info/law2004/JAPANBIZLAWLITE4GAIJIN_LABOR_LAW.html
Sidorenko, A. (1999). Role of Trade Unions in Japan, United States and Sweden: Comparative Analysis. Accessed 12 May 2012. http://members.tripod.com/~a_sid/works/IER.html
US LOC. (2012). Japan: Employment and labor relations. Accessed 12 May 2012. http://countrystudies.us/japan/104.htm
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