This paper aims to reveal the defining characteristics of pre-World War Two personnel management in Japanese companies, focusing on the method behind human resources development. The essential framework of pre-war Japanese-style human resource management constituted employment of staff differentiated into several ranks; varying duties and treatment followed accordingly. Initial ranks were determined by the level of social recognition and academic standing of the schools from which new employees' had graduated. Thus, this approach is termed an "educational class system". It is generally thought that the democratisation of Japan after WWII resulted in the abolition of this educational class system; however, this paper establishes that two misconceptions exist here. The first misconception is that it is thought to have been rather exceptional for a new employee with comparatively weak educational background to be promoted to a prestigious post despite a long record of commitment and contribution to the firm. The second is that it is widely believed that any potential discord between the highly regarded and compensated group of university graduates and the lower-ranked group of factory workers with only basic education was dealt with by the former through the unique Japanese code of group behaviour. In particular, highly qualified engineers with a university education were regarded as taking a serious view of operators' work on the shop floor, more than assignments at laboratories; this attitude has been positively appraised in past studies and discussed as a key factor in Japan's economic success. Yet, these two positions are misleading. The statements of the management and leading engineers of the period prove that university engineering graduates did not possess adequate knowledge for production operations and further, they did not show any preference for work on the shop floor, rather voicing significant complaints about engaging in technical operations in factories. When developing new products on the basis of imported western technology, Japanese firms required both university-educated engineers with theoretical knowledge and shop floor technicians with operational skills. This paper investigates human resources management at the Japanese naval arsenal, the Nagasaki dockyard of the Mitsubishi Shipbuilding Company and Yahata Iron works, and finds that the technicians employed were mostly graduates of technical schools and, in some cases, only had an elementary-level education. They were initially hired to lower ranked positions within the workforce, such as as workmen or employees in assistant positions, but later were promoted to higher ranks in accordance with their commitment to work and education on internal training programmes, and consequent appraisals of their improving technical capability. To improve their technological capacity, the Japanese firms of the period required the improvement and application of the skills of their staff, and for this reason facilitated the development of human resources by providing them with the incentive of promotion to more prestigious posts.