Seniority and lifelong employment are synonymous with Japan's employment system, but Hitachi could change that.
The consumer electronics giant may implement a merit-based salary system for managers next April, according to local broadcaster NHK, which economists say could trigger long-awaited structural changes in Japan's labor market.
Hitachi's decision is major and directly addresses Prime Minister Shinzo Abe's call for companies to increase wages above the government's 2 percent inflation goal, said Junko Nishioka, chief Japan economist at RBS Securities Japan.
By implementing a merit-pay system, companies will prove they are willing to embrace the kind of reform Abe has called, said RBS' Nishioka. The Prime Minister has aggressively urged firms to revamp corporate culture by hiring more women and foreigners, which could be the next step for firms, she said.
Wages in the world's third-largest economy are based on a seniority system where salaries typically increase based on the number of years employees serve. Shushin-koyo, or 'lifetime employment,' has been common since the 1920s, but calls for change are getting louder due to a rapidly aging population and shrinking workforce.