Roger Agustin

Musing of a Sarariman: The End to Over Pay

July - August 2014

At the end of May, the Japanese government announced an initiative to amend labor laws to allow the limit of 40 working hours per week to be exceeded without overtime pay in certain professions. This initiative is backed by the Industrial Competitive Council as part of the government strategy to stimulate economic growth. This is not a new thing at all because the proposal for overtime pay exemption has been thought of for more than 10 years already or even earlier. In fact, the same proposal was made by Prime Minister Abe himself in his first tenure way back in 2007 and stressed exactly the same reasoning behind (please see the excerpt of his speech below). The exemption scheme has already triggered strong reactions and protests from labor unions across the country just like in the past. The proposed amendment seemed to be suggesting a new labor system that scraps overtime pay across the board and that longer working hours promotes `karoshi’ (death from overwork). Just like in the past, the plan has met a lot of opposition from workers, unions and labor lawyers. PM Abe dropped the original plan in 2007 in face of strong criticisms, but the government aims to push through the new legislation proposal during the next year and put it into effect in 2016.

While the proposal is limited to white collar workers with a defined salary level and with conditional options that sound reasonable, it would still face a lot of opposition not only from the white collar workers themselves but even to the would-be workers. Many see the exemption from overtime pay as legalizing the already widespread practice of unpaid “service” overtime. And opposite to the goal of achieving flexibility in working style and work life balance,   it may even worsen the problems associated with long working hours and overwork.

I myself am not at all opposed to the idea because I am a proponent of performance-based pay system and working style. After decades of economic recessions and massive low cost offshore sourcing, the Japanese management styles and corporate cultures needed to adapt itself to changes in the global economy. The well known futurist Alvin Toffler’s book Third Wave gave birth to the concept of the knowledge worker in the Third Wave society which is where we are in now the IT age. We have seen the exponential increase in knowledge based production or knowledge based products where the products themselves could be created overnight and value defined by the consumers. Compare that to the conventional tangible goods that are mass produced of which the value/price is still defined by time and resources, and the difference is clear. 

I saw this coming when I was working for a very conservative Japanese company two decades ago where working overtime was the norm. We were paid for overtime but to a certain limit. Beyond the limit was the unpaid “service” overtime. Being in the low rank, our base salaries were low so that the only way to compensate for the low pay was to work overtime. I was a 

“knowledge worker” back then because my work was on systems design and my main work products were knowledge based like technical reports and patents, and the numbers I crunched ended up in computers that run cars on the streets. But at that time, I couldn’t comprehend the gap between productivity and the need to work overtime (just because everybody was still at work after five!). It wasn’t really about overtime but “working hard” which meant working long hours was seen as a virtue. It looked to me at that time that workers were adjusting their productivity to like 14 hours when they could have achieved the same within the regular 8 hours. I had a deep culture shock though when I moved to a US owned company because the pay was based on performance and overtime needed preapproval. 

Anyway, going back to the overtime pay exemption, it is also not new to me. When I was given the title of a manager, it came with a ‘management allowance’ package in exchange for an overtime pay exemption. It was in line with the Japanese labor laws that exempt employees from supervisor levels from the legal limit of 40 hours per week. It was perfectly fine with me since I was managing a team. But when the company started to promote other employees, including my team members, to supervisory level, it kind of felt odd to me. Many of the employees now are managers without any subordinates! After doing some research, that coincided with the time when a business school reported an increasing number of workers being classified as ‘managers’ when it comes to overtime policy. By paying a nominal ‘manager’s allowance’ or giving management titles to worker, companies are able to avoid paying overtime premiums within the boundaries of legal regulations. While I believe that my company was fair in using this policy, other companies may have taken advantage of this practice. After all, the Japanese workers, whether they are assigned management titles or not, are well accustomed to unpaid overtime work, accepting it as an inevitable fact of life. 

The concept of overtime pay exemption is not bad if it is to promote competitiveness by shifting from time linked pay to performance linked pay system. I believe on the positive side that if the pay is based on performance, the worker is given opportunities to continuously perform better with flexibility and be competitive in the global environment. There is also a high motivation to learn new skills as long as the company supports employee career development. But there would always be loopholes to abuse the system. Companies can set high production quotas at the same time set a cap on overtime hours and pay, white-collar workers would have to work longer hours and consequently forcing their subordinates to work more to meet their targets. It could become a vicious spiral of long hours of unpaid work and overwork related stresses or burnouts. This pheno-menon is already happening on the so called ‘black’ companies and also limits the equal opportunity for working women who are constrained to choose between motherhood and career. 

From my personal point of view, for the proposed legislation to work and meet its goals, it requires a paradigm shift because it would bring disruptive changes to established working cultures in Japan. I am a living testament to this “new” system along with many white collar salarymen.  PM Abe provided the options to choose. From my experience, it is not a matter of choice anymore but rather of acceptance.

A long time ago, I was told by somebody, “Work smart, not hard”. I guess so…and the truth is, if you work smart, you get more work. Ironic, isn’t it?