---
title: How Japanese, Foreign and Chinese Employers Set Pay
description: Japanese companies grade the person, foreign companies grade the role, Chinese companies in Japan often grade the offer. Why each does it, and where it breaks.
image: https://nobusato.jp/hubfs/covers-2026-10/how-three-kinds-of-employers-set-pay-cover-en-2026-10.png
---

[Nobu Sato](https://nobusato.jp/en?hsLang=en)

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Career

In this article

1. [What is an employer actually deciding when it sets pay?](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s1)
2. [Japanese companies: the grade follows the person](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s2)
3. [Foreign companies: the grade follows the role](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s3)
4. [Chinese companies in Japan: the grade is often negotiated](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s4)
5. [Hiring across the lines](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s5)

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# How Japanese, Foreign and Chinese Employers Set Pay

Three employers, three pay logics

[Nobu Sato](https://nobusato.jp/en/profile?hsLang=en)6 min read

Contents5

1. [What is an employer actually deciding when it sets pay?](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s1)
2. [Japanese companies: the grade follows the person](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s2)
3. [Foreign companies: the grade follows the role](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s3)
4. [Chinese companies in Japan: the grade is often negotiated](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s4)
5. [Hiring across the lines](https://nobusato.jp/en/blog/how-three-kinds-of-employers-set-pay#s5)

Employers in Japan attach a pay grade to three different things. Japanese companies attach it to the person. Foreign companies attach it to the role. Chinese companies in Japan often attach it to whatever was agreed in the offer negotiation. Each choice makes sense from where the employer sits, and each one breaks in a predictable place.

## What is an employer actually deciding when it sets pay?

It is deciding three separate things at once. What level is this person? How much responsibility does this role carry? What did this person deliver this period? On my [three-track pay](https://nobusato.jp/en/blog/method-pay-tracks?hsLang=en) page I put it as: the person sets the grade, the role sets the allowance, the result sets the bonus.

Kept apart, each event moves only one track. A promotion moves the grade. Taking on a team adds an allowance. A good year raises the bonus. Very few companies keep them apart. Most pick one track to carry the weight and fold the others into it. Which one they pick says more about how they deploy people than about how modern they are.

## Japanese companies: the grade follows the person

A traditional Japanese company grades people on a skill qualification ladder (shokuno shikaku). Titles like section manager sit on top as a separate layer with a position allowance. The bonus is paid as a number of months of salary, adjusted by appraisal.

The reason is rotation. People move from sales to planning to a regional branch every few years. If the grade sat on the role, pay would go up and down with every move, and in Japan a one-sided pay cut is easy to challenge as an unfavorable change to working conditions. Put the grade on the person and you can move them anywhere without touching their pay.

It is less seniority-driven than its reputation. The Ministry of Health, Labour and Welfare (MHLW) asked companies in its 2022 General Survey on Working Conditions what determines base pay, with multiple answers allowed. For managers, 79.3% cited the job content, 66.6% job performance ability, 57.4% education, age or tenure, and 43.4% results.

Size changes the picture. At companies with 1,000 or more employees, only 40.6% use education, age or tenure for managers' base pay, while 57.9% use results. A 2019 survey of listed companies by the Japan Productivity Center found 78.5% had role or job-based pay for managers and 57.8% for non-managers. How much changed behind the new labels is a separate question, which I looked at in [Japan's job-based pay](https://nobusato.jp/en/blog/japan-job-based-pay-reality?hsLang=en).

## Foreign companies: the grade follows the role

Foreign subsidiaries usually inherit a global grading structure. The role is graded first, the grade has a salary range, and a person is hired into a seat whose grade already exists.

Headquarters wants to compare. A Grade 7 in Tokyo and a Grade 7 in Singapore should carry similar responsibility, so the cost difference is visible at a glance. Budgets and headcount are approved by role. What gets approved is a Grade 7 seat, not a particular person.

The weak point shows up when the role changes. A manager who stops managing should, in theory, drop a grade and lose pay. At home that may be routine. In Japan it invites a dispute over an unfavorable change. A common way out is to leave the person in the old grade and change only the job title. No survey measures this; it is simply where trying to avoid an unfavorable change tends to lead. After a few years the grade on paper and the work on the desk drift apart.

Bonuses are typically a target percentage of salary, split between company and individual results. Of the three models, this is the one where the result most cleanly sets the bonus. Candidates coming from Japanese companies can misread the target percentage as a fixed amount. It can pay out well below the target in a weak year.

Each kind of employer loads one track, and that is where it tends to break

Basis: commonly described practice at employers operating in Japan, summarized as a general pattern. A judgment with no statistic behind it; practice varies widely within each group

EmployerWhat the grade mainly followsWhere it tends to break

Japanese companySkill ladder plus title

→

The person: ability and experience

→

Bonus drifts away from results; strong performers and long-tenured staff end up paid alike

Foreign companyGlobal grading

→

The role: scope and responsibility

→

Grades cannot come down when roles change, so grade and work drift apart

Chinese company in JapanHQ ladder carried over

→

The offer negotiation

→

Same grade, different pay, discovered when the second hire arrives

All three have a grading table. What they skip is setting person, role and result separately.

Figure 1. In Japan, Japanese companies tend to attach the grade to the person, foreign companies to the role, and Chinese companies to the offer negotiation; they break, respectively, where bonus drifts from results, where grades cannot come down after a role change, and where the same grade carries different pay.

## Chinese companies in Japan: the grade is often negotiated

Chinese companies in Japan usually bring the headquarters ladder with them, P-levels and M-levels mapped to salary ranges. On paper it looks like the foreign model.

The difference is the order of operations. Hiring in Japan is hard, candidates hold competing offers, and the country head wants people in seats fast. Under that pressure it is easy for the number to get agreed first, with a grade found afterward that the number fits into. That is reasoning from the pressures involved, not a measured pattern. The grade becomes a result of the pay.

That works on day one. It can stop working six months later, when a second person joins the same role at a different number and the same grade, or the same number and a different grade. Headquarters manages by grade. The Japan office negotiated person by person. Now there are two sets of books, and employees tend to find out.

Bonuses and equity also tend to swing more than at Japanese companies. Some candidates like that. Others see risk. Either way, the range belongs in the offer conversation. The first bad year is too late to explain it.

## Hiring across the lines

Throw away the title conversion table first. A Japanese section manager, a global Grade 7 and a P6 measure different things. Mapping one to another is where most cross-hiring mistakes start.

The order that works is the same for any employer. Decide whether the person fits the role. Set the grade by looking only at the person. Add allowances for what the role carries. Name the number last. When someone comes from a Japanese company, look at ability before years. When someone comes from a foreign company, check whether their old grade described them or their seat. When someone comes from a Chinese company, remember their old grade may itself have been negotiated.

Candidates can read an offer the same way, which I wrote about in [Read your offer in three tracks](https://nobusato.jp/en/blog/read-your-offer-in-three-tracks?hsLang=en). It is one table, filled in from the other side.

My take is that nationality will matter less and less here. Large Japanese companies are moving toward role and results, foreign subsidiaries are being pulled toward the person by Japanese labor law, and Chinese companies are building real grading systems. The line that will still separate employers is whether they decide the three tracks separately or in one conversation about a number.

Sources (as of November 2026)

- [MHLW, General Survey on Working Conditions 2022, Section 3: Wage Systems (Japanese)](https://www.mhlw.go.jp/toukei/itiran/roudou/jikan/syurou/22/dl/gaiyou03.pdf)
- [Japan Productivity Center, 16th Survey on Changes in Japanese Employment and HR Practices, summary (2019, Japanese)](https://newscast.jp/smart/news/0933565)

---

Author

[Nobu Sato](https://nobusato.jp/en/profile?hsLang=en)

Launching in Japan, starting with people and systems. I write about building organizations, sales teams and technology organizations in Japan, in English, Japanese and Chinese.

[Profile](https://nobusato.jp/en/profile?hsLang=en)[Contact](https://nobusato.jp/en/contact?hsLang=en)

## More in this column

1. 01[Engineer to EM in Japan: What Employers Look For](https://nobusato.jp/en/blog/engineer-to-em-what-employers-look-for?hsLang=en)7 min
   
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[Column guide: Career](https://nobusato.jp/en/blog/guide-career?hsLang=en) · [Glossary](https://nobusato.jp/en/blog/glossary?hsLang=en) · [The method behind the articles](https://nobusato.jp/en/blog/method?hsLang=en)

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