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Officer compensation, etc.

As of June 26, 2019

Nature and method of resolution for determination of officer compensation amounts and method of computation thereof

The Company has the following policy for determining the amount of compensation for officers and the method of calculation to determine the amount.

Directors’ (Excluding Directors elected as Audit Committee Members. The same shall apply in i) below.) compensation is discussed and assessed by the Compensation Committee, which is an advisory body to the Board of Directors, taking into account the Directors’ compensation scheme, compensation packages and levels, distribution balance and other aspects. On receipt of the recommendations of the Compensation Committee, the final amount is determined within the range of a resolution made at the general meeting of shareholders.

Basic policy

ⅰ) Directors’ compensation

The basic policy regarding Directors’ compensation is set out below.

  1. Directors’ compensation scheme and compensation packages should be designed to raise Directors’ motivation to contribute to the fulfillment of management goals and sustainable growth in corporate value.
  2. Directors' compensation scheme and compensation packages should be designed to attract and retain diverse personnel with the right capabilities and who are sought after as officers of global corporations.
  3. We ensure the validity and objectivity of decision-making procedures and distribution balance of Directors’ compensation.

Under the policy stated above, the amount of Directors’ compensation is determined with reference to information, gained from external research organizations, concerning the rates of remuneration for similar posts, and also in consideration of the balance between a basic compensation based on the Director’s responsibilities and a floating amount closely tied to the Company’s business performance for each fiscal year. By this method, the Company principally aims to make efficient use of the Directors’ compensation scheme to provide them with incentives to enhance the Company’s performance for each fiscal year and achieve medium- to long-term maximization of corporate value.

The compensation package contains a bonus linked to the Company’s performance and the amount of bonus equals 50 percent of an Executive Director’s annual salary, which is used as the basis for his or her compensation package. For the compensation scheme, we have adopted an institutional design that allows the relevant Directors to share awareness of profits with shareholders and to be motived to perform management based on awareness of performance and stock value from medium- and long-term viewpoints.

The bonus is comprised of monetary remuneration (bonuses, an amount equivalent to 30 percent of basic compensation) and non-monetary remuneration (stock based remuneration, an amount equivalent to 20 percent of a basic compensation) based on an incentive plan using trusts.

Each Director is evaluated in light of the level of distribution of surpluses for given fiscal years targeted for evaluation, the degree of achievement of numerical targets in relation to management indexes, the degree of achievement in relation to management indexes including non-financial viewpoints established by each Directors in advance, etc.

ii) Compensation of Directors elected as Audit Committee Members

Focusing primarily upon effective auditing of execution of the Company’s duties, compensation of the Directors elected as Audit Committee Members in the form of fixed fees has been determined within the amount resolved at the general meeting of shareholders based on consultation with the Audit Committee Members. This has been done so that the Audit & Supervisor Board Members will be able to fulfill their duties independent of the influence of persons who execute businesses.

Compensation, etc. of Executive Directors, as aforementioned, includes performance-based compensation, for which the Company determines a policy for the percentage of the total amount of compensation including basic compensation. In operating its compensation system, the Company adopts the performance criteria considered suitable to the circumstances of the Company, for the short-term incentive compensation (monetary remuneration/bonuses), and the medium- to long-term incentive compensation (stock based remuneration using the Board Benefit Trust), respectively, which are intended to provide motivation for individual executives to be committed to achieving the performance target, with a view to fulfilling the Company Vision, “Achieve continuous growth with sustainable superior profits through innovation, using all knowledge of all parties and contribute to the sustainability of society.” Specifically, in calculating the amount of bonuses, the Company adopts the criteria for evaluating the contribution of the departments, etc. managed by each Executive Director to the entire corporate performance, namely achievement against targets in revenue, operating profit, cash flows from operating activities and capital efficiency (ACE* and ROIC), as well as their increases year on year, on top of the evaluation criteria for measuring achievement against the targeted corporate performance in the form of consolidated ROE for the current fiscal year. In addition, performance against the non-financial targets established for each individual is also considered for evaluation. Furthermore, as evaluation criteria under the stock based remuneration system, the Company adopts the operating profit target established at the beginning of each fiscal year during the applicable period of the system, along with the operating profit target under the Mid-term Management Plan GLP2020. As for performance-based compensation, the amount of compensation paid or number of shares (points) delivered is variable within the range between 0% and 100%, commensurate with the achievement against the target (excluding the portion of the stock based remuneration not based on performance).

*ACE (Anritsu Capital-cost Evaluation): Net operating profit after tax - Cost of capital

As specific criteria for the main areas of performance adopted in the evaluation of performance-based compensation, the Group adopted consolidated targets for the fiscal year ended March 31, 2019 comprising revenue of 92.0 billion yen, operating profit of 6.6 billion yen, operating profit ratio of 7%, ROE of 7%, and ACE of 0.1 billion yen, while the actual results turned out to be revenue of 99.6 billion yen, operating profit of 11.2 billion yen, operating profit ratio of 11%, ROE of 11%, and ACE of 3.9 billion yen. Based on the aforementioned actual results and the contribution of the department managed by each Executive Director to the entire corporate performance, along with other non-financial considerations, bonuses paid to Executive Directors for the current fiscal year amounted to a level exceeding the standard bonus amount by executive rank as established by the Company. Stock based remuneration (number of shares) granted conclusively through the Board Benefit Trust at the retirement of each Executive Director, shall be determined based on the aforementioned operating profit achievement against targets for the current fiscal year, but subject to the results for each and the last fiscal year during the applicable period of the GLP2020.

The Company believes in the necessity of the process to ensure objectivity and transparency in determining the amounts of compensation, etc. of Directors (excluding Directors elected as Audit Committee Members), not least in the assessment of individual Directors, and values the involvement of the Compensation Committee as an advisory body to the Board of Directors in such process. The Compensation Committee, chaired by an Outside Director, currently comprises all four Outside Directors, the Group CEO and one full-time Director nominated by the Group CEO, adding up to six Directors in total.

The amount of compensation, etc. paid to each Director (excluding Directors elected as Audit Committee Members), shall, within the aggregate range as approved by the general meeting of shareholders, be determined by the resolution of the Board of Directors, following deliberation at the Compensation Committee. Of the total compensation of Directors, the total amount of Executive bonuses shall be deliberated at the Compensation Committee based on the estimated results as at the end of the fiscal year and approved at the general meeting of shareholders, while achievements against (non-financial) targets of individual Directors shall be evaluated, with discretionary authority, by Hirokazu Hamada, Representative Director, President and Group CEO, who then shall determine the allocation of the Executive bonuses to each Director under the authority delegated by resolution of the Board of Directors. To ensure transparency, the Compensation Committee to be held after this procedure shall verify the process for determining the executive compensation, etc. and the results of payments thereof.

Position Total amount of compensation (Millions of yen) Total amount classified by compensation type (Millions of yen) Number of eligible officers
Basic compensation Performance-based compensation Stock based remuneration
Bonuses Stock option Sub Total
Directors
(Excluding Audit Committee Members and Outside Directors)
292 159 95 33 128 5 5
Directors elected as Audit Committee Members
(Excluding Outside Directors)
23 23 - - - - 1
Outside Directors 33 33 - - - - 4

(Notes)

  1. The maximum amount of officer compensation (however, excluding the amount equivalent to salaries for Directors who serve concurrently as employees) determined at the resolution at the 89th Ordinary General Meeting of Shareholders is 260 million yen per year (including 45 million yen per year for Outside Directors) for Directors (excluding Directors who are elected as Audit Committee Members) and 60 million yen per year for Directors who are elected as Audit Committee Members. The number of Directors involved in such resolution shall be 11, comprising eight Directors (Directors who are elected as Audit Committee Members) (including three Outside Directors) and three Directors who are Audit Committee Members (including two Outside Directors).
  2. The Company shall pay neither bonuses nor stock based remuneration to Directors who are elected as Audit Committee Members and Outside Directors.
  3. No Director of the Company received 100 million yen or more in the total consolidated compensation (including compensation for Director of its principal consolidated subsidiaries).