by Noriyuki Morimoto
In corporate HR systems, compensation is predetermined, and therefore includes an element of expected contribution. Compensation based on expectation is a kind of advance payment for results to be achieved by personnel who grow and deliver value in the future.
It takes time for performance to align with compensation. Until then, since the level of compensation exceeds performance, the cumulative difference represents a receivable for the company and a liability for the employed talent. The company needs the employee to settle this liability through future contribution.
Let’s call employees who have fully repaid this liability “capital talent” and those who have not yet repaid it “debt talent.” Employees who quickly become capital talent are core personnel who support the company’s growth, so treating them appropriately is a strategic issue for the company.
In a traditional Japanese system, capital talent has been treated by turning them back into debt talent. In other words, capital talent goes back to being debt talent through promotion, where significant expectations are reincorporated into their compensation. They are required to achieve results commensurate with these expectations within a very short period of time to regain their status as capital talent.
Executive candidates are promoted within a minimal number of years and rotate through key departments within a short period to gain experience, eventually advancing to executive positions. Given that only a very small portion of employees ultimately rise to the position of executive, it is a fairly strict system.
However, there is a fatal flaw in this system. A management team nurtured by this system of expectations from higher-ups is incapable of addressing the pressing issues of modern management such as reform, transformation, innovation, creation, and tackling new challenges.
So how should crucial talent for a company’s growth strategy be treated? Here, it is important to distinguish between compensation and treatment. Treating people well is not simply a matter of providing monetary compensation, but of providing them with all of the company’s tangible and intangible assets.
Human capital refers to talents who create new value within an organization by effectively utilizing the tangible and intangible assets of the corporate environment. Therefore, their compensation should be determined through the distribution of the added value they create.
It is not that the organization comes first and drives people to create added value: rather, people come first and utilize the environment—that is, all tangible and intangible assets within the organization—to take initiative and generate added value in the company. This change in thinking, i.e., an organizational theory that drives such transformation is the key.
[Category /Work-Style Reform]
Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.