Tournament Structures in Japan and the U.S. : Why are They Different and Will they Change?

Abstract

Organizational reward systems based on rank order tournaments are used throughout the world. Still, the tournamentstructures applied in different countries differ substantially: While in the U.S., promotion tournaments are the mostprominent, Japanese organizations predominantly make use of bonus payment tournaments. In our paper, we askwhy tournament structures might have evolved so differently in the two countries. Referring to recent advances intournament theory showing that Japanese bonus payment tournaments dominate U.S. type promotion tournaments ifemployees are sufficiently risk-averse, we search for evidence that might hint at a higher degree of risk-aversion ofJapanese as opposed to U.S. employees. Having identified cultural as well as institutional factors that indeed mightfoster a higher degree of risk aversion on the part of Japanese employees, we render one potential explanation whytournament structures in Japan differ from those in the U.S.. To the extent that institutional factors are currentlychanging in Japan, we expect to observe changes in tournament structures as well. We conclude by discussing therecent changes in Japanese institutions and culture and their potential implications for the future use of tournamentstructures.