TOKYO (Bloomberg) -- Honda Motor Co. Executive Vice President Tetsuo Iwamura said the Japanese automaker will set pay based on reaching profitability targets, rather than government directives on how fast to increase compensation.
Japanese Prime Minister Shinzo Abe has called four meetings since September with union and business leaders to persuade them to build a consensus on the need for higher wages to end 15 years of deflation in Japan. Toyota Motor Corp. and Hitachi Ltd. are among the manufacturers that have said they’ll comply with that request.
“We respect his request,” Iwamura said in an interview at Bloomberg headquarters in New York on Thursday. “Our first priority is to improve profitability. Then we will consider the reward for our stakeholders and our associates.”
The company, Japan’s third-largest, in March boosted annual bonuses for workers to the equivalent of 5.9 months of pay from 5 months a year earlier. A further increase in compensation next year is “likely,” Iwamura said.
“We are aiming for a 780 billion yen ($7.5 billion) profit this fiscal year,” said Iwamura, the second-ranking global executive for Honda. “Once we achieve that, we have the resources to share with our associates.”
Honda will probably earn 828 billion yen in operating profit, the average of 23 analyst estimates compiled by Bloomberg, exceeding Honda’s forecast for the year ending in March.
The Abe administration’s reflation efforts have succeeded in stoking exporter profits with a cheaper yen, which increases the value of goods sold abroad. The currency’s decline has helped send the Topix Index of stocks toward its best year since 1999, with a 43 percent surge this year. With consumer prices now rising at an annual pace of about 1 percent, higher wages will be needed to avoid hurting households who also face a 3 percentage-point bump in sales taxes in April.
Abe, in a Dec. 6 interview with Bloomberg News, singled out Hitachi and Toyota, the world’s largest automaker, as two companies that have promised to increase pay for employees in Japan.
“He is asking us to reward our associates, and we are thinking about that at this moment,” Iwamura said.
Such a move next year could come in the form of a straight wage increase, higher annual bonuses or an improvement in benefits, Iwamura said. “It could be a combination of all three for Honda.”
“What we want is for wages to rise more than prices,” Abe said in an interview in the prime minister’s official residence in Tokyo. “We want to enter a virtuous cycle as quickly as possible,” where economic growth propels corporate profits, employers raise compensation and workers spend more, he said.
Abe pledged to forge ahead with structural reforms designed to open business opportunities in industries from health care to agriculture. He said his cabinet will adopt a program laying out deregulation priorities in the new year, with a minister placed in charge of the effort.
Toyota, Japan’s largest manufacturer, last month predicted net income would rise 74 percent to 1.67 trillion yen in the year through March 2014, aided by a weaker yen. The currency has fallen more than 20 percent against the dollar since mid- November last year, when Abe kicked off his election campaign with a platform of reflation.
Hitachi, a Tokyo-based maker of electronic equipment and machinery, projects operating profit will jump 19 percent to a record 500 billion yen in the year through March 2014.