If I were asked to design a reward system for a Japanese manufacturer wishing to promote and reward revolutionary innovation, I would implement an incentive bonus system. When an employee's innovation generates a large profit, a bonus of JPY100 million will be awarded.
From a Japanese company perspective, the amount of bonus award may look gorgeous because many of the board members are not entitled to an annual total compensation of JPY100 million. Hence, the amount should serve as a visible recognition and eventually serve as a retention.
However, I will also pay attention to how to design the distribution. A large amount of bonus in a year will cause a large amount of resident taxes in the following year. If JPY100 million is awarded in a single year, the incumbent will need to pay JPY10 million of resident taxes. Besides, this will put the incumbent to the highest tax bracket. More importantly, once the payment has been made, there will be no further way to retain the incumbent.
One of the ways to distribute this incentive is to defer the payments in several times and in a few forms. Here is an example: 8% each will be paid as bonus allowance through monthly payroll for 5 years thus the total payment representing 40% of the award; 20% will be added to the retirement allowance as a special contribution, fully payable in 10 years from the award; 40% will be paid as bonus, deferred over five years from the second year. Suppose an engineer is entitled to a base salary of 10 million yen, their annual income could reach JPY 26 million without seasonal bonuses for four years and JPY 18 million for another two years.
This will allow the company to retain the talent for probably 5 - 10 years. This will prevent their competitors from stealing the talent and creating competitive advantage from the stolen talent for 10 years.
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