Toyota Motor and its labour union have agreed to switch from age-linked wages for mechanics and other skilled workers to a system of performance-based pay, Dow Jones reported, citing Kyodo News.

The report said Toyota and the union will discuss further details of the agreement and launch the new system in April, and added that age-linked wages increase automatically as an employee gets older, thus serving as the backbone of the seniority-based promotion system.

Once the new system is in place, Toyota will have eliminated all its age-based wage practices, the report said, noting that the company has already ended age-based wages for other workers, including executives and clerical employees.

In October, the company will also introduce a new retirement pay scheme emphasising an employee's qualifications and performance, the report said.

According to Dow Jones, Toyota has been one of the major symbols of Japan's seniority-based system and its change is expected to spur the move toward switching to the merit system.