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This chapter analyses the management of pay and performance in the case study companies, against the background of the embedded systems of the USA and the host countries. Both wage classifications and the issue of performance management are examined. Patterns of decision-making on both dimensions are found to be generally more centralized than is the case for other areas of HR policy. On the issue of wage classifications, patterns of broadbanding are examined, as well as the means by which US multinationals challenge sectorally-based pay determination in Germany. It then explores the issue of forms of individual and collective performance pay, looking at recent changes in the nature of merit pay, particularly the increasingly competitive nature of its allocation through mechanisms, such as forced distributions. It also reviews the extent to which performance management is used as a tool to ‘cull’ weaker performers, and suggests that the origins of such policies can be related to the societally-specific norm of ‘employment at will’.

Examines changes that have been taking place in the treatment of regular full-time workers in Japan. Among the developments examined are the introduction of performance-related pay, flattening of the age-earnings profile, specialist training, and shorter working hours. Looks at trends in labour mobility and concludes that long-term employment is still the rule for the majority of these employees.

The chapter introduces the main issues raised by the second section of the book. First, the authors argue that, in recent years, a growing proportion of firms introduced incentive pay schemes. Moreover, the economic recession has increased interest in firm practices that may improve performance and employment, and in public policies to promote such practices. Most studies have suggested that performance-related pay schemes are usually associated with improved employee productivity. In particular, the book focuses on a new wave of studies that have used company-specific data, with credible identification strategies, to investigate the effects of the introduction of performance-related schemes. The chapter also addresses the topic of a renewed interest in incentive systems that go beyond short-term effort and give employees a stake in the long-term prospects of the firm.

This chapter examines employment practices and adjustment drawing on both survey data and case study materials. While over 80% of Japanese listed firms maintain a commitment to lifetime employment, many firms have abandoned seniority-based wages in favour of merit-based payment systems based on individual performance evaluations. Some corporate governance practices, such as stock options and equity-based performance measures, negatively impact the continued use of seniority-based pay. Meanwhile, the percentage of in-house board members has a negative impact on market employment patterns, which suggests that external market pressures may be less important than the style of insider governance in determining employment patterns. Despite this continued commitment to lifetime employment, the core of employees covered under such arrangements is shrinking through the active use of ‘benevolent’ methods of employment adjustment, such as early retirement schemes. These finds suggest that some elements of Japanese-style HRM may be compatible with changing corporate governance institutions.

The author suggests that performance-related pay, because ill-designed for bankers or not sufficiently widespread among employees, has played an important role in the last two world crises. Compensation systems paying hefty bonuses to bankers when they make profits, but not penalizing them sufficiently when they incur losses, are clearly encouraging excess risk-taking in the financial industry, whereas pay scales for millions of workers determined in centralized wage-bargaining structures that do not allow for performance-related compensation are also problematic: they reduce incentives for workers to move to high productivity firms and do not adequately encourage efficiency and identification of workers with the enterprise’s interests. New empirical evidence is offered on the relevance of these interpretations of the crisis. In particular, two fundamental issues are raised: the misalignment of shareholders’ incentives (and CEOs’ incentives in the financial sectors) with those of society at large, and the limited coverage of performance-related pay in southern Europe.

Both Japan and Korea had to whither important economic crises that inspired heated debate about the need for change in their economic institutions. This chapter discusses and compares the subsequent adjustments in their employment practices. It confirms important similarities in pre-crisis practices such as employment stability and seniority wages, and post-crisis adjustments such as the introduction of performance-related pay, and a rise in labour market dualism and non-regular employment. At the same time, it also shows important differences before and after the crises between Japanese and South-Korean employment practices. To discuss these developments, the analysis draws on recent insights in institutional theory and shows that the changes in employment practices have been highly endogenous in character as they have been shaped by existing employment practices through bricolage.

Most studies suggest that when firms have good performance measures, performance-related pay is associated with improved employee productivity and better worker–firm match. If all firms that would benefit from performance-related pay have introduced it, subsidizing other firms to switch through tax breaks and other forms of state assistance will yield lower returns than estimated for current users. But it is also possible that many firms retain existing pay systems when they could do better with performance systems, which would justify state promotion of some schemes. Making pay dependent on company performance may also be a way for firms to share risk with workers through cost adjustments, which could preserve jobs in difficult times. But there is also evidence that incentive schemes do not necessarily improve performance in all contexts and situations. For example, firms often introduce financial participation schemes for reasons that have little or nothing to do with incentives.

Corporate governance can be defined as a system that constitutes an institution that constrains relations between corporate managers and various stakeholders, including shareholders, creditors, workers, suppliers, and customers. Under this broad definition, corporate governance is a system of various sub-systems that are complementary to one another. This chapter focuses on two sub-systems of Japanese corporate governance: corporate finance and human resource management. After briefly documenting the characteristics of the Japanese corporate governance in these two sub-systems, the chapter discusses how each sub-system has been going through substantial changes in recent years. Examining the data for fifty-eight listed companies, the evidence shows some degree of complementarity between the two sub-systems. The firms that have a non-traditional ownership structure (especially high with foreign ownership) seem to have more non-traditional human resource management practices.

This chapter focuses on shifts in the identities of the financial creditors who participate in the reorganization of a complex, leveraged capital structure. It argues that the changing identities of these participants undermine some of the assumptions made in Chapter 11 about the ways in which reputational concern will interact with corporate reorganization law to motivate bargaining. Once again, the account in the chapter reveals why the comparatively recent development of corporate reorganization law to deleverage a complex capital structure in England means that the same assumptions are not made about the identities of the participants in the process, the role of reputation, or the bargaining environment in general.