Corporate Governance

Corporate Governance, Executive Compensation and the Japanese Approach (Part 2)

By J Robert Brown Jr.

Until recently, Japan required public companies to disclose the compensation paid to officers as a group.  It did not require the disclosure of specific individuals leaving, in most cases, the actual compensation of the CEO a mystery.  The aggregate data provided only a crude basis for examining the compensation of top officers.

This has changed.  Disclosure is now required of any officer making more than Y100 million or approximately $1.09 million.  The rule was promulgated by the Financial Services Agency, the successor to the old Banking Bureau within the Ministry of Finance and applied to all listed companies (approximately 3800 companies).  As the regulation provides:

• (1) Disclose the total compensation etc. for each of four categories: directors other than external directors, audit officers other than external audit officers, executive officers, and external officers (external directors and external audit officers). Disclose the amounts by each compensation type (by basic compensation, stock options, bonuses, retirement benefits, etc.).

• (2) For each officer, individually disclose the total amount and amount by each type of compensation etc. as an officer of the submitting company, and if simultaneously serving as officers of major consolidated subsidiaries then their compensation as officers of those consolidated subsidiaries. People subject to disclosure can be limited to people with total compensation etc. of 100 million yen or more as officers of the submitting corporation and its major subsidiaries. Also, if there are employees who simultaneously serve as officers, if the employee salary portion is important, then disclose its content.

The change applied to fiscal years ending on or after March 31, 2010.  In short, it applies now.  

The change unsurprisingly drew objections from business interest, particularly from the Keidanren, Japan's Business Roundtable.  In addition to learning the specifics of CEO pay, the disclosure promised to throw light on another aspect of executive compensation in Japan:  The payment of foreign officers more than Japanese officers. 

We will discuss the impact of these changes in the next post.

Full post as published by The Race to the Bottom on July 01, 2010 (boomark / email).