For many years, the energy industry had certain perceptions about salary. That oil & gas pays higher than renewables; that multinational companies pay higher than Japanese firms; that large corporations are the best-paying players in the market.
As the energy industry transitions and diversifies, subsidies and large-scale investment have flowed into new technologies across renewable generation, grid flexibility and next-generation mobility, resulting in a shift in the salary and power balance.
Do Japanese companies pay less, and does oil & gas pay more?
The answer is not so simple. We need to look into the value of the whole package, not only taking into account the cash (base + bonus) portion of a salary package. Typically, large Japanese firms do pay a lower cash portion than their foreign counterparts, and often oil and gas majors are competitive with global renewable energy firms.
Looking at the benefits offered and understanding their value is key when assessing the true total package. A few common benefits are listed below:
- Housing allowance. Junior staff often live in company-provided dormitories, and housing allowances of a certain percentage are paid to higher-ranking employees. As this allowance is paid pre-tax, the savings can be significant for the employee.
- Retirement allowance (tiashokukin). Often, retirement benefits are tied to the length of service in Japanese firms. Especially in cases where an employee has spent their whole career with one firm and is in their 40s or 50s, the difference between their payouts if they leave the company, or remain and retire there, can be in the tens of millions of yen.
- Employee stock plans. Not limited to Japanese companies, stock plans are sometimes overlooked and their true value is not understood. Depending on the company, these may come in the form of RSU (restricted stock units) that will vest over a period of time, or stock options that are harder to assess, especially in pre-IPO companies.
- Flights, benefit stations, allowances, etc. For someone who travels internationally on a regular basis, the difference between business and economy-class flights can be significant. Corporate tie-ups and partnerships with company getaways (besso) or discounts on restaurants, hotels etc, through plans such as benefit stations, add some, though generally not significant value to a total package.
Risk vs reward
As energy technologies have developed, investment has diversified and players have globalized. There’s now a wide range of options for professionals to choose from. We tend to see a clearer correlation between risk and reward, compared to Japanese vs multinational, for example.
Though many Japanese see foreign capital firms as inherently risky, the truth is that well-known foreign names such as the oil and gas majors, as well as power utilities,
have become desirable employers, and they have a long-term view of the Japanese market. This has resulted in such large foreign firms having a lower risk profile which means that they tend to pay in line with, or modestly more than, domestic counterparts of similar standing in the industry. However, no one is doubling their salary moving from a major trading house to a multinational power utility.
Put your money where your mouth is
Developers backed by private equity are increasingly prevalent in the market. Typically, they take on more risk, get involved in projects at an earlier stage, and keep leaner teams where each employee’s work is clearly visible to management. The mandate of these funds is to turn a profit; therefore, in a down market, the risk of downsizing or leaving is certainly higher. These firms often pay for performance, giving a higher base salary, as well as a lucrative bonus, profit sharing, carried interest, etc. Not only choosing the company’s size but also choosing the timing to join can have a significant effect on the offer given to a new employee. Similar to tech startups in the U.S., those joining earlier bear greater risk, bring a bigger impact to the firm and are rewarded in line with this.
In-demand talent and transferable skills
Supply vs demand is basic economics, and in the energy transition, there are windows of opportunity for professionals who have experience or widely desired skills. Experience in bidding for an offshore wind project, or structuring and negotiating an offsite corporate PPA, are examples of this. Often, those who hold the in-demand experience are in a position to gain multiple offers, and command negotiation power to increase the value of offers. Both companies looking to attract such talent, and firms who seek to retain their top performers, need to be aware of this trend, as increases of 20-40% are not uncommon.
Naturally, in a growth market, there’s not enough experienced talent to fill all open positions. Companies will often hire talent they see as high-potential, without the required experience, but who have a strong base of transferable skills. Engineering, project management and building supply chains for wind or battery projects are common examples. In these cases, the employer needs to invest significant time, energy and resources into upskilling, often including business trips to HQ or regional project sites. In these cases, the onus is often on the employee to understand the value that the new skills will bring them. Ambitious employees may then accept a smaller pay increase or even a small drop in their overall remuneration in order to take this chance and acquire valuable skills.
Case A: Combining risk vs reward and in-demand talent scenarios. Titan GreenTech introduced a Head of Engineering with over six years of directly relevant experience to an investment-driven development platform as one of their original members. The employee was leaving a stable Japanese organization with a sizable operational portfolio. His offer was a 60% increase in base salary, as well as access to potentially lucrative profit-sharing opportunities.
Case B: Investing in future development. In another case, Titan GreenTech introduced a young, high-potential professional for a senior role that would lead commercial, contract and PPA negotiations for a well-known developer with an excellent track record and training capabilities. Though the employee didn’t have direct experience with such contracts, he demonstrated agility, adaptability and willingness to learn. He understood the value of the skills and experience he’d gain by taking on the role and made the move without an increase.
Salary benchmarking or value-based offers
What are they making now vs what value do they bring? These two significantly different
questions are asked when companies consider their budget or how to make an offer. This tends to correlate with risk vs reward or the size and complexity of the organization.
Large, publicly-traded companies will typically set a budget range prior to beginning a search, and when identifying talent at the lower end of the range, they often pay a menial increase that doesn’t touch their budget ceiling. The basic idea tends to revolve around the candidate’s current salary level, and how it compares to those already in the team (internal equity).
On the other hand, smaller, leaner, result-driven firms give a wide budget range or ask their agency partner to provide typical ranges. Rather than excluding candidates who exceed their ideal range, they’ll typically meet the candidate and try to understand what additional value that person can bring. The position may be widened, the scope changed, and the budget increased to accommodate such talent. Often, large increases are seen here, where previously undervalued talent is given a chance to show what they are worth.
It’s difficult to say which approach is better, as each organization has different needs, internal resources and benefits for those who decide to join. As with assessing the package value mentioned above, much more than simply cash compensation must be considered by both the employer and employee when it comes to number crunching time.
Andrew Statter is Partner and Head of Titan GreenTech, a Tokyo-based human capital and executive search firm with a focus on renewable energy and clean technology markets. Titan supports global companies with Japan market entry, as well as scale-up and key hiring.
This article originally appeared in the Japan NRG newsletter. NGR Japan is a one-stop platform that delivers both information and analysis on energy and electricity markets in Japan.