Executives feel the pinch as Japanese firms cut costs: Terry McCarthy reports on a collective spirit of belt-tightening after years of profligate spending

JUST as Victorian women had to suck in their breath to don the whalebone corsets of their age, so corporate Japan is sucking in its breath to fit in to the straitened financial circumstances of today. When Matsushita Electric Industries announced this week a fall in sales of 7 per cent for the first six months of this fiscal year, producing a 51 per cent drop in profits, the company also announced directors' salaries were to be cut by 10 per cent for the next six months.

Japan is not experiencing anything like the recession in the UK - unemployment is a mere 2.2 per cent, factories are slowing production rather than laying off workers altogether, and although consumer demand is falling, most companies have sufficient cash reserves to weather a few lean years.

But in a collective spirit of belt- tightening after the profligate years of the bubble economy, top executives are taking their share of the cost-cutting drive that is running throughout Japanese industry. The announcement that Matsushita's directors are taking a 10 per cent pay cut attracted attention because they work for the biggest electronics company in the world. But other Japanese companies are following suit.

Honda, for example, announced earlier this year a new 'performance merit system' - a sliding pay scale for managers in which compensation will be linked to an individual's performance in his job. For some this will mean an increase in pay, but overall it is likely to result in a reduction of the company's wages bill. Other companies are slashing summer and winter bonuses, which in good times can amount to an extra three months' pay twice a year.

There are two reasons for cutting executives' pay: it directly reduces costs, and it allows the company to justify cutting the half- yearly bonus payments to ordinary workers, and to argue for modest wage increases at the annual spring wage bargaining session.

The absence of a 'them and us' attitude between workers and management in Japanese industry and the feeling that all employees of a company, from the president to the shop-floor trainee, have a stake in the company's fate has been one of corporate Japan's main assets when faced with an economic downturn.

Salaries are not the only benefits being cut. A friend who works for a money broker recently received a detailed list of permissible entertainment expenses, graduated according to the seniority of the client he was taking out. In the bubble years at the end of the 1980s his expense account had no ceiling, and it was not uncommon to spend Y300,000 ( pounds 1,500) on an evening's entertainment.

But all that has changed. Expensive sushi lunches are now reserved for department chiefs and above, and only the most senior executives can be treated to dinner followed by a night in an exclusive hostess bar. 'It's incredible - with an ordinary money dealer I cannot go much further than a bowl of noodles,' he said.

The assault on expense accounts is more important in Japan than in other developed economies, because they make up a far larger proportion of managers' total benefits. Apart from entertainment allowances, executives are treated to chauffeur-driven cars and the more senior often enjoy corporate golf club memberships. On the other hand, salaries are relatively low.

According to a survey last month of 106 big Japanese corporations, the average corporate president's salary is Y34.28m, about 12 times what a new employee would earn in his first year. By comparison, top US executives on average receive 25 times the pay of their blue-collar colleagues, according to Towers Perrin, a recruitment consultancy firm.

Even more interesting is the historical trend in Japan - which appears to be the direct opposite of the US, where in recent years top executives' pay has been increasing at a faster rate than that of the rest of the workforce.

According to the Japan Federation of Employers' Associations, the gap between salaries paid to executives and ordinary workers has been reduced as Japan's economy has expanded: in 1927 top managers earned 110 times the wage of labourers, in 1963 the ratio was down to 24, in 1975 it was 15, and now it is 12.

----------------------------------------------------------------- JAPANESE SALARIES ----------------------------------------------------------------- Average salaries of executives and salarymen in 106 top companies Chairman pounds 184,550 President pounds 171,400 Managing director pounds 120,300 Director pounds 78,450 Salaryman, age 40 pounds 36,748 Salaryman, age 30 pounds 24,100 New employee, age 22 pounds 13,892 ----------------------------------------------------------------- Source: September 1992 survey carried out by the Institute of Labour Administration -----------------------------------------------------------------

(Photograph omitted)