Ranking hierarchy and rank order tournament

This paper examines the relationship between pay structure and the pattern of promotion within Japanese companies, with particular emphasis on the pay gap between employees in adjacent ranks in the hierarchy; i.e., between Bucho (division manager) and Kacho (subdivision manager). One of the most important contributions of this paper, which examined data from a national survey, is that we use tournament theory to analyse pay gaps between employees in Japan, showing that there is a negative relationship between the pay gap and the possibility for promotion. In addition, the pay gap becomes larger as an employee goes up the hierarchy.