PERFORMANCE MANAGEMENT

AND REWARD SYSYTEM

PROJECT REPORT
ON
“Toyota’s compensation and incentive structure”

SUBMITTED TO
Dr. Radha Mohan
in
partial fulfillment of the requirements of
MBA program for
ICFAI Business School (IBS), Hyderabad

SUBMITTED BY
Anumula Bhavana (19BSPH01C0171)

Date of submission: 18th September 2020

Introduction

Toyota Motor Co., Ltd. is a multi-national company established in 1937 by Kiichiro Toyoda at
Toyota City, Japan; which years later, branched out not only throughout Japan but also throughout
Asia, Western and Europe. Toyota as a leading automobile company employs 338,875 (as of
March 31, 2014) and is headquartered in Toyota City, Aichi, Japan. Business expansion-wise,
Toyota has many subsidiaries such as manufacturing divisions in North America, China, Thailand;
design development division in France; vehicles and evolution division in Belgium and many
others. By the end of Dec 2013, it conducted its business globally with 52 overseas manufacturing
divisions in 27 nations/regions.

In 1967, Toyota started the merger with Daihatsu to strengthen the automobile market and in 1983,
luxury-car line ‘Lexus’ was launched by Toyota. Toyota practices quality management
methodologies such as Just-In Time production (JIT) and Toyota Way.

Toyota Production System (TPS) demands not employees but team workers with no working
experience in automobile industry as Toyota believes it might not be easy for experienced staff to
replace the prior knowledge attained from former job with new knowledge. Also, Ability to
multitask is highly demanded from candidates. In order to fulfill the quest for the right employees,
Toyota does not hesitate to put a lot of employees at recruiting tasks. Toyota Motor Sales (US) aka
TMS division alone has approximately 25 associates at headquarters and field divisions, assigned
the recruiting responsibilities.

Toyota Industries Group companies aim to contribute to an enriched lifestyle of people and
comfortable society around the world by continuously supplying products and services that are
truly needed by customers. They are looking for passionate, talented people to help them to lead,
grow and achieve their vision.

Toyota Industries Corporation does not recruit directly for any of their group companies. Their
group companies recruit their staff independently. Some of their group companies provide
information on job openings, career opportunities, talent acquisition or graduate recruitment
programs on their websites.

When it comes to recruiting, a corporation can pull the labor force from internal resources and
external resources. In search of suitable candidates, Toyota goes for external resources and uses
recruiting methods such as advertising on newspapers and magazines, electronic recruiting on
Toyota’s websites and email blasts with the recent jobs. Public recruiting agencies play as a part
of recruitment process. Employees registered with public agencies can be located by Toyota
through the agencies.
To evaluate the employees’ improvement over, annual performance appraisal alone would not be
adequate. 360-degree evaluation should be practiced on Check stage of OTJ development. Better
understanding of employee’s strengths and weaknesses through the feedbacks of everyone he
works with is one huge advantage of this evaluation. This will help HR management team with
designing job enlargement for employees. Job rotation method should be considered as staffs can
gain insights of various jobs and skills from it. The multi-skilled employees will serve as a pillar
of strength for Toyota during labor shortage.

A good company is more than attractive salary package. It must about provide a good and safe
working environment for the staffs. It is unarguable that an organization’s prospect lies
tremendously on its labor force. Toyota is no exception. Thus, human resource representatives
must not only hire the best people but also retain them. A set of clear principles and procedures
are to be set out within a company to prevent any discriminations and injustice penalties.

In many cases, employees were not aware that their actions might be against the discipline. HR
department of Toyota should come up with a formal discipline policy and educate employees for
better knowledge about violations. For disciplines alone would not create the safe working
environment, HR department must always complete their disciplines by always being attentive to
employees and following up with their complaints.

Toyota motor corporation has never confronted any issue with its employee’s compensation and
incentive packages. They treat as people are their greatest asset and they treat them as such by
paying them a good amount of salary and empowering their employees with personnel motivation.

Even the top executives at Toyota do not receive a seven-figure salary. Salaries are determined
with a fair market value in mind. The attitude Toyota follows is the “me” v/s “we” attitude which
helps to drive Toyota’s success.

Toyota has long marched to a different approach when it comes to wages and compensation. Now
with the economy turning upside down, Toyota is forced into cost cutting measures to align hourly
wages more closely with the state manufacturing wages of where the plant is located. They follow
the policy of paying employees well and they will perform better and be more productive, but also
promote a policy of equal payment for each policy.

Toyota initially offer high wages to hire the cream of the crop. Daily, monthly, yearly goals were
outlined for each department and offered a bonus system if goals were achieved. The bonus is
distributed to each individual regardless of organizational profits and not by individual
performance thus enhancing the team concept.
The company also uses non-monetary awards, as letters of "thank you" from the president,
recognition on Toyota publications, and daily appraisals from their peers and supervisors. One of
the highlights of the Camry plant was to build a gym, cafeteria and a nursery for the children of
the employees. The higher management also does not have special parking places or any other
perks to enhance the feeling of equality with their fellow employees.

Benefits are communicated to employees on their day of hire with the Toyota Handbook which
explains company policy wages, benefits, health care packages, retirement and pension plans and
the company mission.

Initially the Toyota offers high salaries in an effort to attract the best talent, but there it ends. Even
top executives in Toyota rarely receive more than a seven-figure salary. After all the training and
development Toyota puts into its employees, some can be wooed away from other companies with
the promise of more money.

Toyota believes in “green” and that is passed on to its employees by making them socially aware
of establishing a low carbon society. There is no waste of any kind at Toyota and sometimes that
means eliminating positions and tasks that may potentially harm the environment. But that does
not mean that the employee is discarded along the way. They are just retrained into another job.

The current issues faced by the organization as they relate to compensation and benefits. The
current recession has made Toyota consider the “unthinkable” for them and that is laying people
off. In previous years this has never been an issue for Toyota as people are their most valuable
asset.

They have managed to avoid it thus far by reducing man hours, moving people to different
operations and rethinking their benefit packages. They are in favor of tailoring an individual
benefit plan instead of offering the comprehensive group plans they now offer.

Contrarily, the company is implanting scheme wherein employees are rewarded based on joint
efforts. This approach seems motivational to employees as it encourages each team to endeavour
in improving its performance above others, which is evidence by retention and the loyalty of
employees.

Given that Toyota is a multi-national company, there are various factors in regions/locations,
policies and practices in host countries. There should also b standardization of compensation of
expatriate in various locations.
Initiatives for Health Management and Improvement
As a task for the medium term, they are promoting health improvement of associates, mainly
focusing on prevention of lifestyle diseases and mental health support activities, to counter risks
associated with aging and greater stress.

For prevention of lifestyle diseases, they conducted periodic age-based health education for all
associates. They also gave feedback to associate the results of an annual health check-up and
measurements conducted on the same day, including physical fitness, body fat percentage and
amount of fat around internal organs, along with advice to improve lifestyle habits.

This health education is designed to provide motivation for better health by letting associates think
about their health over the course of the one-day program. Additionally, they will augment
initiatives to enable each associate to work and take active roles until the age of 65. They are now
considering the enhancement of physical fitness measurement programs and implementation of
measures to support associates’ self-help efforts.

Major Health Promotion Activities in Fiscal year 2019

2,470
Participants of age-based health education
persons

Persons having completed guidance program on prevention of lifestyle 1,117

diseases persons

World No Tobacco Day: One-day no

ー
smoking (May 31)
Stop smoking
enlightenment events
No Smoking Days: Half-day no smoking
ー
(for eight days)

Participants of stop smoking campaigns (held jointly with health 19

insurance association) persons

Participants of walking events (held jointly with health insurance 5,069

association) persons
Under the stress check system introduced in fiscal 2017, they again conducted a check on all
associates in fiscal year 2019. As in fiscal year 2018, they referred the check results to all
participants and workplaces with suggestions for improvement. They also set up an individual
interview with a doctor for those wishing to do so and provided improvement support as necessary
to individual workplaces.

As a means to feed back the results to workplaces, they operate an IT-based workplace check
results viewing system that allows the users to perform a precise search of results and tips for
improvement. In the future, they will further reinforce their workplace improvement activities by
linking them with associate awareness surveys.

For these efforts, Toyota Industries was again recognized in the large enterprise category of the
2019 Certified Health and Productivity Management Organization Recognition Program (White
500) jointly promoted by Japan’s Ministry of Economy, Trade and Industry and the Nippon Kenko
Kaigi. They also promised to continue to undertake activities to promote both mental and physical
health and create a workplace that enables all associates to work actively.

Improving Mental Health Support Systems

Enhancing Team Strength
Toyota Industries believes that it is essential to enhance team strength so that each associate can
work with vitality and the Company can achieve sustainable growth.
They believe that team strength is made up of “technical skills” that form the basis of
manufacturing operations, “management skills” to make maximum use of technical skills and a
“spirit of harmony” that supports both.

While further enhancing their team strength, they are striving to extend and hand it down beyond
all business domains, generations and geographic regions.

Establishing Work Environments Where Diverse Human Resources Can Play Active Roles
They are implementing a variety of measures to support a diverse range of human resources who
can fully exercise their capabilities. These include promoting active roles of female associates,
supporting the employment of persons with disabilities and creating an environment in which older
associates can work more actively.
Promoting Active Roles of Female Associates
They have been formulating plans to harness a more diverse range of human resources and
continuing to carry out activities since 2008.
They have introduced such measures as a shorter work-hour system for child care and a
telecommuting system. In addition, by introducing “a return-to-work (“welcome-back”) system,”
which allows associates who have left work to care for children and family members or to
accompany their spouse for a job transfer to get reinstated under certain preconditions, they
provide an environment for associates to work at Toyota Industries for longer years with peace of
mind.
In terms of measures to promote more active roles for female associates, they have set the target
of increasing the ratio of female graduate recruits to 40% in administrative positions and 10% in
engineering positions, and tripling the number of female associates in managerial positions by the
year 2020 compared with 2014, and intend to step up activities to achieve their goal.

Employment of Persons with Disabilities

They respect the idea of people with and without disabilities working together and sharing life and
work values. Under this basic policy, they continue to employ persons with disabilities every year.
They are assigned to a variety of sections and work with other members to perform their designated
tasks. In fiscal 2019, the ratio of associates with disabilities on a non-consolidated basis was
2.37%.

Ratio of Associates with Disabilities

Corporate Governance
Toyota Industries strives to enhance its corporate value in a stable manner over the long term and
maintains society’s trust by earnestly fulfilling its social responsibilities in accordance with its
Basic Philosophy. To that end, Toyota Industries endeavours to further enhance its corporate
governance in its efforts to maintain and improve management efficiency and the fairness and
transparency of its corporate activities.

Corporate Governance Structure

Basic Perspective on Corporate Governance
Toyota Industries regards the most important managerial task is to earn trust broadly from society
and enhance their corporate value on a stable, long-term basis. They aim to do this by
implementing Basic Philosophy, which consists of “Respect for the Law,” “Respect for Others,”
“Respect for the Natural Environment,” “Respect for Customers” and “Respect for Employees,”
and by earnestly fulfilling their social responsibilities.

Their basic focus is on contributing to the creation of an enriched society through business
activities, and they believe it is essential to cultivate good relationships with stakeholders,
including shareholders, customers, business partners, creditors, local communities and employees.
Year Month Events

1992 Research and Development Group creates the Forest of Toyota plan

1995 December Toyota donates money to the Chesapeake Bay Foundation for its
environmental programs

1997 October

Forest of Toyota and Model Forest created

1998 Environmental education program Eco-no-Mori Seminar commenced

(through 2005)

Eco monitoring at the Forest of Toyota commenced (through 2008)

1999 Toyota receives the 1999 Greenery Day, Natural Environment

Distinguished Service Award for its promotion of the Forest of Toyota
plan

2000 Toyota Environmental Activities Grant Program commenced

2001 The Nature Experience Program for School Children at the Forest of
Toyota starts (ongoing)

Toyota's desertification prevention and afforestation project in China

commenced (through 2010)

2003 May

The Satoyama Learning Center Eco-no-Mori House opens inside the

Forest of Toyota

2004 October The Forest of Toyota receives the Land, Infrastructure, Transport and
Tourism Minister's 24th Green City Award

2005 July Toyota donates funds to the All-China Youth Federation as part of its
(Toyota) China Youth Environmental Protection Aid Program

Toyota Shirakawa-Go Eco-Institute opened

 2006 February Toyota receives the Outstanding Philanthropic Corporation Award -
Special Award from the Japan Philanthropic Association for its
afforestation activities in China

May The Nature Play Program for Families with Children at the Forest of
Toyota begins (ongoing)

2007 Tropical rainforest regeneration project commenced in the Philippines

2009 May

The Toyomori Institute of Sustainable Living, a new environmental

contribution program, is commenced (ongoing)

2010 January Toyota provides financial assistance for the Tenth Conference of the
Parties (COP10)

2011 March The Forest of Toyota receives the highest level of certification from the
Social and Environmental Green Evaluation System (SEGES)

Accordingly, they strive to enhance their corporate governance in order to maintain and improve
management efficiency, fairness and transparency. For example, they have established a structure
to quickly and flexibly respond to changes in the business environment and have been working to
augment management oversight and ensure the timely disclosure of information.
More specifically, the following basic policies drive their initiatives.
1. They seek to ensure shareholders’ rights and equality.
2. They seek to promote appropriate collaboration with stakeholders other than shareholders
(including customers, business partners, creditors, local communities and employees).
3. They seek to conduct appropriate information disclosure and ensure transparency.
4. They seek to perform the roles and duties of the Board of Directors appropriately in order
to make decisions in a transparent, fair, quick and resolute manner.
5. They seek to promote a constructive dialogue with shareholders.
Over the years, Toyota has established numerous welfares, cultural, and recreational facilities in
and near its plants and business places to enhance the health and free time of its employees.

Each business place has facilities to accommodate activities for its employees. In the area of sports,
for instance, business places feature various indoor and outdoor facilities including gymnasiums,
playing fields, fitness centres, and shower rooms. For cultural pursuits, there are recreation rooms
and Japanese-style tatami rooms, which can be used for cultural activities as well as meeting rooms
for work and group meetings.

The Toyota Sports Center, completed in May 1973, also offers a full range of sports amenities on
a spacious site. The center can be used on a day-to-day basis by all employees and their families
and is also used for company-wide Ekiden competitions and other events. In addition, it is used as
a training facility by Toyota's representative and non-competitive clubs and by the Nagoya
Grampus soccer team.

To ensure sustainable development of society across the globe, Toyota is actively promoting a
wide range of initiatives, including environmental education, environmental activity grants, and
afforestation.

Information from www.glassdoor.com

The average Toyota monthly salary ranges from approximately ₹ 10,333 per month for Mechanical
Technician to ₹ 33,481 per month for Mechanic. The average Toyota salary ranges from
approximately ₹ 2,00,000 per year for Quality Engineer to ₹ 7,00,000 per year for Mechanical
Engineer.
Salary information comes from 128 data points collected directly from employees, users, and past
and present job advertisements on Indeed in the past 36 months.

Benefits they are getting:

According to the responses
1. Perks are very good for the deserving candidate & chance to win Trip to abroad are very
bright for deserving candidate.
2. Great People Good Culture Good work life balance, better than other firms Decent
compensation Decent growth and opportunity for advancement Fun, albeit a bit forced,
culture
3. Free Lunch or Snacks
“excellent food, snacks, very much hygiene”
 4. Maternity & Paternity Leave Maternity & Paternity Leave are there
5. “Company provide two days casual leave per month, along with any personal leave allowed
one week, if any case need any medical leave you must submit your application for the
leave”
6. “They provide sick leaves but it should not be a lot”
7. Company provide employers state insurance and PF to all employers as everyone get free
medical assistance from hospitals and get a personal savings after retirement.
8. Company provides almost free transport and two meals along with unlimited beverages
(nominal charges), an employee friendly medical cover including family members and very
good bonus. Moreover, the salary structure is one of the best in the auto industry

References:
https://lawaspect.com/reward-system-toyota/

https://courses.lumenlearning.com/wm-principlesofmanagement/chapter/employee-
compensation-incentive-and-benefits-strategies/

https://lawaspect.com/toyota-compensation-benefits/