Grades Are Not Titles: A Minimum Grade Table for Japan

The first grade system for a small Japan entity should do one thing before anything else: keep grades and titles apart. Titles are free to hand out and expensive to take back. Grades are what you actually pay against. Mix the two, and every reorganization in Japan turns into a pay cut negotiation.

What is a grade for, and what is a title for?

A grade describes the person. A title describes the seat. The grade answers how much work this person can be trusted with and which base pay range they sit in. The title answers which seat they hold right now and what they represent to people outside. Japanese HR has a name for keeping them apart: separating 役職 (position) from 等級 (grade).

Take a hypothetical case. A Japan entity is hiring its fifth person, who asks for 部長 (department head) on the business card. It costs nothing, so the founder agrees. A year later there are fifteen people, three department heads and two section heads, and the newest hire asks what level they are. Nobody can answer. The case is made up, but many founders will find it familiar.

Once grade and title are separate, someone can move up without changing seats, or change seats without moving down. If the department-head seat disappears, the person's grade and base pay stay where they were.

Which grade systems do Japanese companies use?

Several kinds, often at the same time. In the 2026 Survey on Personnel and Labor Systems by the Rosei Institute of Labor Administration, a private research body (questionnaires sent to 5,467 companies including 3,764 listed ones, 298 responses), adoption was 53.7% for skill-qualification grades (職能資格), 46.6% for role grades (役割等級) and 35.9% for job grades (職務等級). Job grades were at 12.6% in 2013. The three add up to well over 100%, so many companies combine them, for example skill grades for staff and role grades for managers.

Roughly: skill-qualification grades rate the person's ability, rarely go down, and over time tend to track seniority. Role grades rate the size of the role someone carries. Job grades rate the job itself, which is what Japan now calls job-based or jobu-gata, and they need a full set of job descriptions first.

The government isn't pushing one model. The Job-Based HR Guidelines published on August 28, 2024 by the Cabinet Secretariat, the Ministry of Economy, Trade and Industry and the Ministry of Health, Labour and Welfare collect 20 company cases and say each company should choose an approach that fits its own style. Fujitsu's entry explains that its old grades were set by competency, close to the skill-based idea, and its new grades by the weight of each job's responsibilities. I wrote separately about how Fujitsu stopped setting graduate pay by degree, and about how many companies really run job-based pay.

For a Japan entity of ten or twenty people, I wouldn't copy any of them. Skill grades drift toward seniority. Job grades need job descriptions you can't afford to write and maintain yet. I would use three-track pay instead: grade describes the person, the seat's responsibilities are paid as an allowance, and the bonus looks only at the period's results.

What does a minimum grade table look like?

Six steps is enough. Write each step on three axes only: how big a problem the person can carry, how far their judgment reaches, and how much direction they need. Team size, budget and sign-off authority stay out. They belong to the seat.

Why leave the top two empty? Because the first few grades you assign become the yardstick for everyone after. Put your third employee at G6, and when the company reaches fifty and someone arrives who really carries a business, you have no step left to give them. Japanese employees watch internal balance closely. Once the top is crowded, the only way out is a second system.

Write each step so a person can prove it. "In the last six months, who used the approach you set?" works. "Strong communicator" and "shows leadership" don't, because the review falls back on impressions, and the loudest person in the room wins.

A section-head title doesn't exempt anyone from overtime

This is where titles cost real money, and where founders from abroad slip most often. Under Article 41, item 2 of Japan's Labor Standards Act, a "manager or supervisor" (管理監督者) is outside the rules on working hours, breaks and rest days. So some companies assume that calling someone a section head means no overtime pay.

The labor ministry's guidance says otherwise. Whether someone counts is judged on what they actually do: duties, responsibility and authority, and how they work. The title on the card doesn't decide it. A "section head" or "leader" with little discretion, who has to get approval for most things, doesn't qualify. Even someone who does qualify still gets the late-night premium for work between 10 p.m. and 5 a.m. and annual paid leave, like any other employee. A 2008 ministry notice on store managers at retail and restaurant chains lists the same factors, plus pay and treatment.

A business card that says department head won't stop an overtime claim covering several years. I wrote about how unpaid overtime builds into one large bill. Separating grades from titles at least forces the question: is this person actually managing, or only managing on paper?

Where should the first version stop?

A six-step table with a few lines per step is ready to use. Don't add pay increments in year one, don't split G3 into G3-1 and G3-2, and don't build a precise grade-to-salary matrix. Twenty people's worth of data can't support that precision.

For someone you couldn't assess fully in interviews, give a provisional grade and confirm it at 90 days against what they actually did. In building a Japan entity from zero, systems come last, and the grade table is no exception. You only learn whether the wording works after the first people have done the jobs for a while.

When is it time for a second version? When two people on the same grade are obviously at different levels in everyone's eyes. Once is a grading mistake. If it keeps happening, the words in the table are too vague. That's the table's fault.