This paper examines the nature and the economic consequences of performance-oriented HR system reform at a large Japanese auto dealership. Company A, the auto dealer, changed its HR system in 2000. The main objectives were to reduce the rigidity of personnel costs and to put more emphasis on individual performance rather than seniority and experience. Three major components of the reform were as follows: (a) the company transformed the wage system from a skill-based to a job-based system; (b) the company changed the commission system for the sales force from a linear compensation scheme to one kinked around the “draw” line; and (c) the company modified the performance rating system from conducting an overall evaluation of each employee's ability and performance to focusing on utilizing evaluations of individual performance.
Econometric analysis of the personnel data has revealed the following points. First, following the reform, wage differentials increased for employees under forty years of age. Second, productivity effects amounted to a 24-percent increase in new car sales and a 12-percent increase in used car sales. Third, the reform had a stronger motivating effect on the new car sales force, while it had little motivating effect on the used car staff. Fourth, the new performance rating system strongly tended to generate improved results for most employees in lower-level job ranges while lowering results for poorly performing employees in higher-level job ranges, thus reducing wage rigidity for higher-paid staff.
These findings indicate that Company A's new HR system has been effective in motivating and stimulating greater effort by the new sales force, However, the productivity effect is not clear for the used car staff, and the higher draw line has negative effects on sales volume.
Therefore, while A's transformation has proved partially successful, it has been accompanied by unintended side effects.
