The nature, scope and effects of profit sharing in Japan: evidence from new survey data

Abstract

In this paper we document in a variety of ways the nature, evolution and significance of Japanese profit-sharing plans (PSPs), using our new survey data. We also combine the survey data with corporate proxy statement data and produce firm-level micro-data for nearly 100 Japanese firms with PSPs containing detailed information on the characteristics of their PSPs. The resulting micro-data are then used to estimate the effects on enterprise performance of varying attributes of Japanese PSPs. Key findings include: (1) contrary to a popular notion of near-universal diffusion of PSPs among Japanese firms, about one in four publicly traded firms in Japan uses a PSP; (2) consistent with the free-rider problem of PSPs, PSPs are shown to be more popular among smaller firms, firms without unions, firms with employee participation at the grass roots; (3) over 70 per cent of firms with PSPs reported separate plans for officers and non-officers; (4) Japanese PSPs do not normally distinguish between union and non-union members; (5) Japanese PSPs are mostly company-wide; (6) nearly all Japanese PSPs are cash plans; (7) about a half of Japanese PSPs do not have a set formula for how the contribution should be tied to profits; (8) there is a statistically significant gain in firm performance from using an explicit formula; and (9) including certain targets in the formula appears to improve firm performance the most.