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The Significance of Family Allowances in Japan

The Significance of Family Allowances in Japan

May 07, 2018
byNoriyuki Morimoto

 

Until quite recently, it was usual practice for Japanese corporations to provide family allowances. An employee with a spouse would receive a spouse allowance, and monthly payments were made for each child of an employee as child allowance.

 

Family allowances are not paid in accordance to the employee’s achievements or labor. They do not compensate for anything, so it doesn’t make sense from the logic of corporate governance. Then why did family allowances continue in Japan as an element of the human resources system?

 

Actually, to say that monetary payments always have to compensate for some specific effect is narrow-minded. People give and receive money in various social occasions like celebrations and as thank-you gifts. Such payments are made for the purpose of conveying some kind of feeling. It is also possible for a company to pay money to convey a sense of appreciation.

 

So what were companies trying to convey through family allowances? It would not make sense for companies to provide allowances based on one’s family structure, which is unrelated to the company, unless they are based on the belief that members of a company share a certain value, history and culture, and together make something like a community. In other words, companies probably held the view that those inside were different from the people outside the company.

 

Currently, it has become the norm for companies to pay essentially the same amount for the same work, whether or not it is done by a regular employee. But in the past, it was normal for regular employees to have an advantage. The compensation gap can be justified only as a naturally (rather than logically) established privilege of a person inside the company.

 

In essence, family allowances were probably a way to build a sense of unity or belonging. In that aspect, there was something they intended to convey, as money works as a message.

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Noriyuki Morimoto

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. (Tokyo Office) in 1990, where he was Director & Consultant for 13 years. His responsibilities also included Benefit consulting and Financial Services consulting. Prior to joining Watson Wyatt, he was responsible for foreign fixed income investment, asset allocation and investment strategy at Mitsui Life Insurance Co., where he managed assets for the company’s variable life products and group annuities as a fund manager. He spent 2 and half years in London managing fixed income assets. He started his investment career as Japanese equity analyst at Mitsui Life in 1983. Bachelor of Arts (Philosophy), University of Tokyo (1981)

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