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Officer compensation, etc.

As of June 24, 2021

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

The Company resolves the policy on determining compensation details for individual directors at the board meeting following the prior deliberation at the Compensation Committee.

For individual directors’ compensation for the latest business year, the Board of Directors confirmed that the method to determine the compensation details and their contents was consistent with the policy resolved by the board above, and the conclusion of the deliberation at the Compensation Committee was adequately respected. Thereby, we decide the above method and details are in line with the above policy. The policy on determining compensation amounts and calculation methods are as follows. For the purpose of this policy, the officers subject to this policy include Vice Presidents and Executive Officers who have entered into a delegation agreement with the Company.

As to the compensations for Directors (excluding Audit & Supervisory Committee Members, and the same shall apply in paragraph i) below) and Officers (collectively referred to as “Officers, etc.” in this section), the Compensation Committee, an advisory body to the board, deliberates the compensation scheme, its components, payment level, the balance of allocation, and other details. Receiving a report (toshin) on the result of such deliberations from the Compensation Committee, the Board of Directors determines the compensations for Officers, etc., within a range approved by the relevant general meeting of shareholders. Further, after making the payment of compensation to the Officers, etc., the Compensation Committee shall confirm the process to determine compensations, the result of payment, and other related matters to secure the transparency of those processes before reporting them to the board.

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.

Through the compensations, the Company primarily intends to give Officers, etc., motivational effects as an incentive to increase their business performance in each business year and to enhance the mid-to-long term corporate value. Therefore, under the principles above, it determines their compensations, using outside research firms’ survey data on officers’ compensation as a reference in terms of the scheme and payment level and considering a balance between the basic remuneration and the performance-linked one depending on their respective responsibilities and duties. Anritsu has currently introduced a compensation package for Officers, etc. under which the amount equivalent to 50% of their basic remuneration to be the performance-linked compensation, for motivating them in sharing a profit orientation with the shareholders and engaging in management with an awareness of performance and the stock value from the mid-to-long-term perspective. However, for non-executive Officers, etc. (including Outside Directors), the Company provides, in principle, the fixed pay only.

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.

The Company evaluates each of Officers, etc., based on several factors, including the degree of achievement of their numerical target related to the Company’s performance key indicators and their management objectives, including non-financial ones, set by themselves in advance. In evaluating them, some factors require performance rating from the non-financial aspect. The Board of Directors may give the President and Representative Director by its resolution the discretion to decide the amount of compensation to be allocated to each Director, considering the above performance rating together with other calculation factors.

ii) Compensation of Directors elected as Audit Committee Members

The Company determines the compensations for Directors on the Audit & Supervisory Committee as the fixed pay within a range approved by the relevant general meeting of shareholders, based on the Audit & Supervisory Committee Members’ consultation. The primary purpose of providing the compensations is to ensure the effectiveness of audits on the Company’s business execution and encourage them to fulfill their duties as the Audit & Supervisory Committee Members independent of Executive Directors. We also decide the payment level, using the survey data on officers’ compensation gathered by outside research firms, and considering the level for part-time Directors who are neither Executive Directors nor Directors on the Audit & Supervisory Committee.

As described above, since the compensations for Executive Directors include the performance-linked compensation, the Company sets out its policy on the proportion of the performance-linked one in the total compensation package containing the basic remuneration. The purpose of operating the compensation programs is to motivate Directors to forge ahead with attaining their performance target toward realizing the Company Vision. In this light, the Company has introduced several goal indicators deemed appropriate, which respond to the short-term incentive compensation (pecuniary compensation or bonus) and the mid-to-long-term incentive one (the stock compensation program that employs a trust structure for distributing shares), respectively. Specifically, in calculating the bonus, we use the consolidated ROE as an evaluation criterion for the degree of achievement of the Company’s overall performance targets for the relevant business year. To measure the contribution of a department or unit of which a particular Director takes charge to the Company’s performance, we employ other indicators: i.e., the degree of achievement of projected sales, operating profit, operating CF (cash flow), and capital efficiency and percentage change from the previous year and the like. The actual progress toward non-financial targets set by Directors, respectively, is also considered in their evaluation. Also, as a judging criterion for the stock compensation program, we use the operating profit targets set at the beginning of each business year during the Program Period and in the mid-term management plan. The payment amount and the number of evaluation points (to be granted to Directors, respectively) fluctuate on the achievement degree of their target level, with the exception of the portion that is not linked to business performance. For the stock compensation program, the Company issues and grants a certain number of shares to Directors, in principle, at their retirement as Director, respectively, through the trust for distributing shares. The number of such shares should be equivalent to the number of points combining the performance points given to a Director on the business result of each business year and the same calculated based on the result of the final year of the mid-term management plan.

With regard to the performance key indicators used in the evaluation of performance-linked compensation, the Group’s consolidated targets for the fiscal year ended March 31, 2021, which is the final year of the three-year Mid-term Management Plan GLP2020, were revenue of 105.0 billion yen, operating profit of 14.5 billion yen, operating profit ratio of 14%, and ROE of 12%, while the actual results turned out to be revenue of 105.9 billion yen, operating profit of 19.6 billion yen, operating profit ratio of 18.5%, and ROE of 15.8%. Based on the aforementioned actual results and the contribution to the Company’s performance of the department or unit of which each particular Director takes charge, and in consideration of other non-financial aspects, performance-linked compensation paid to Executive Directors for the latest business year generally amounted to a level that exceeded the standard amount by executive rank, as established by the Company. In accordance with the resolution of the Board of Directors’ meeting held on April 27, 2021, the stock compensation program continues to be operated in conjunction with the start of the new three-year Mid-term Management Plan GLP2023, the first year of which is FY2021. The Company believes in the necessity of the process to ensure objectivity and transparency in determining the amounts of compensation of Directors (excluding Audit & Supervisory Committee Members), particularly with regard to the performance rating of individual Directors, and values the involvement of the Compensation Committee as an advisory body to the board in this process. The Compensation Committee is chaired by an Outside Director, and currently comprises a total of seven Directors, including all five Outside Directors, the Group CEO, and one full-time Director nominated by the Group CEO.

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.

Total amount of compensation by position category, total amount by compensation type, and numbers of eligible officers

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
Bonuses Stock option Sub Total
Directors (Excluding Audit Committee Members and Outside Directors) 247 123 83 40 123 4
Directors elected as Audit Committee Members (Excluding Outside Directors) 24 24 - - - 1
Outside Directors 38 38 - - - 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 8comprising 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 above-mentioned bonuses of 83 million yen were paid to the four officers who were members of the Board of Directors (excluding Directors who are Audit Committee Members) as of the end of the fiscal year ended March 31, 2021, as approved in the proposal for officer bonuses at the 95th Ordinary General Meeting of Shareholders held on June 24, 2021.
  3. The above-mentioned 40 million yen of a stock option was the portion granted to four Directors (excluding Directors who are Audit Committee Members) from the stock options approved at the 92nd Ordinary General Meeting of Shareholders held on June 26, 2018. At the 92nd Ordinary General Meeting of Shareholders, the continuation of the stock compensation program (as introduced in accordance with the resolution of the 89th Ordinary General Meeting of Shareholders held on June 25, 2015) was approved with partial modifications. Further, it was also resolved that stock compensation (up to a total of 210 million yen over three business years, and a maximum of 50,000 shares (points) per business year) is granted to Directors (excluding Outside Directors and Audit & Supervisory Committee Members) who were in office during the three business years from the year ended March 31, 2019 to the year ended March 31, 2021 (in the event that the applicable period is extended based on a resolution of the Board of Directors due to the expiration of such period, the period after such extension), and that determination of the specific details is entrusted to the board.
  4. Non-monetary remuneration, etc. consists of the Company’s shares to be granted under the stock compensation program.
  5. The Company shall pay neither bonuses nor stock based remuneration to Directors who are elected as Audit Committee Members and Outside Directors.
  6. 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).
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