Basic Policies and Procedures for Determining Executive Compensation

The Group has established the following “Basic Policies and Procedures for Executive Compensation” (hereinafter “Basic Policy”) for the purpose of clarifying the basic principles, policies, and approach regarding the determination of remuneration, etc., for Directors, members of the Audit & Supervisory Board, and Executive Officers.
In addition, the Company shall establish a separate “Policy for Determining Individual Director Compensation”, based on this Basic Policy and procedures, by resolution of the Board of Directors.

1. Basic principles and procedures

  1. (1)Compensation for individual Directors is within a range determined by the General Meeting of Shareholders and decided by the Board of Directors following deliberation by the Nomination and Compensation Committee.
  2. (2)Compensation for individual Audit & Supervisory Board Members is based on a system separate from that for Directors and is within a range determined by the General Meeting of Shareholders and decided based on deliberation by the Audit & Supervisory Board. Consulting with the Nomination and Compensation Committee concerning the determination of compensation for Audit & Supervisory Board Members shall be regarding the adequacy and appropriateness of the total compensation level.
  3. (3)Compensation for individual Executive Officers is based on a system separate from that for Directors and Audit & Supervisory Board Members and is decided by the Board of Directors following deliberation by the Nomination and Compensation Committee.

2. Basic compensation policy

  1. (1)Executive Directors (Directors other than Non-Executive Directors)
    • Compensation for Executive Directors shall be structured so as to increase the motivation of said Directors to achieve short-term performance targets and improve medium- to long-term corporate value, as well as to increase an awareness of shared values with shareholders.
    • Compensation for Executive Directors shall be comprised of fixed compensation commensurate to respective duties and performance-linked compensation (short-term performance-linked compensation, medium- to long-term performance-linked compensation).
    • Short-term performance-linked compensation shall be paid in accordance with the degree of achievement of consolidated performance targets for a single fiscal year, the achievement of performance targets of the division for which the individual is responsible, and the strategic targets set for each individual.
    • Stock-related compensation, including the granting of performance-linked restricted stock (performance share units), may be paid as medium- to long-term performance-linked compensation.
  2. (2)Non-Executive Directors (The Company’s Director & Chairman, Outside Directors)
    • Compensation for non-executive Directors shall consist of fixed compensation only, considering the position of these individuals to supervise and advise management based on a high degree of objectivity and independence.
    • Fixed compensation shall be commensurate to the responsibilities of an Outside Director and shall be determined based on consideration separately for full-time and part-time, and based on the roles of each individual.
  3. (3)Audit & Supervisory Board Members
    • In light of the position of Audit & Supervisory Board Members to audit business operations by Directors regardless of corporate performance, compensation for Audit & Supervisory Board Members shall be based solely on fixed compensation.
    • Fixed compensation shall be commensurate to the responsibilities of an Audit & Supervisory Board Member and shall be determined based on consideration separately for full-time and part-time, and based on the roles of each individual.
  4. (4)Executive Officers
    • Compensation for Executive Officers shall be set to provide strong motivation to execute business as senior management and shall be linked to performance.
    • Compensation for Executive Officers shall be comprised of fixed compensation commensurate to respective duties and performance-linked compensation (short-term performance-linked compensation, medium- to long-term performance-linked compensation).
    • Short-term performance-linked compensation shall be paid in accordance with the degree of achievement of consolidated performance targets for a single fiscal year, the achievement of performance targets of the division for which the individual is responsible, and the strategic targets set for each individual.
    • Stock-related compensation, including the granting of performance-linked restricted stock (performance share units), may be paid as medium- to long-term performance-linked compensation.

3. Basic policy for performance evaluation benchmarks

The performance of executive Directors and executive officers shall be evaluated based on the degree of achievement of consolidated performance targets, the achievement of performance targets for divisions over which the individual has responsibility, and strategic targets set for each individual. Specific evaluation indicators shall be determined according to the importance of management with respect to the annual budget and medium-term management plan. Evaluation ratios shall be determined according to the responsibilities and roles of each individual.

4. Other

  1. (1)There is no retirement allowance system for Directors, Audit & Supervisory Board Members, and Executive Officers. However, this may not be the case in the event of special circumstances, including when a subsidiary joining the Group via corporate acquisition has an existing retirement allowance system and when such a system is deemed necessary.
  2. (2)The Company shall provide disclosure in an appropriate manner of this basic compensation policy, the “Policy for Determining Individual Director Compensation,” and remuneration amounts paid to directors and members of the Audit & Supervisory Board.

Overview of Fixed Compensation , Single-Year Bonuses and Stock Compensation for Executive Directors, and Explanation of Individual Remuneration

  1. (1)The amount of basic compensation (monetary compensation), which consists of fixed compensation, and the determination of the calculation method thereof is as follows.
    • Basic compensation for each individual executive director shall be at a level appropriate to his or her responsibilities. Such compensation shall be determined by position, with the president and representative director at the top, in consideration of the nature of his or her duties and responsibilities.
    • Basic compensation for executive directors shall be determined on an annual basis and paid in equal monthly installments.
  2. (2)The following describes the approach and amount, or determination of calculation method thereof, related to determinations regarding performance indicators in connection with single-year bonuses (monetary compensation, performance-linked compensation, etc.).
    • A single-year bonus, which is short-term performance-linked compensation, shall be paid to executive directors for the purpose of incentivizing them to achieve targets established for a single fiscal year.
    • Bonus payments for a single fiscal year shall be paid in conjunction with the rate of achievement of the company’s consolidated performance indicators as a common indicator for all directors, the degree of achievement of strategic targets set for each individual director, and the rate of achievement of the targets of the performance indicators in the departments over which a director is responsible. Performance indicators to be used as evaluation indicators shall be determined in accordance with the importance of the business at the time,
    • The bonus amount for a single fiscal year for an individual director shall be determined by multiplying the base bonus amount for each eligible director (determined for each position) by a payment scale in accordance with the degree of achievement of the above-mentioned indicators, taking into consideration the nature of each director’s duties, roles, responsibilities, and the composition ratio of remuneration components. The payment rate shall be 100% when the target is achieved. The range of payment shall be between 0% and 200% depending on the rate of achievement of the Company’s consolidated performance indicators and the performance indicators of the division for which the director is responsible. The range of payment shall be between 0% and 120% depending on the degree of achievement of strategic targets established for each individual.
    • Single-year bonuses shall be paid at a certain time after the end of each fiscal year.
  3. (3)The following describes the approach and amount, or determination of calculation method thereof, related to determinations regarding performance indicators in connection with share-based compensation (non-monetary compensation, performance-linked compensation, etc.).
    • Stock-based compensation shall be provided to executive directors for the purpose of incentivizing them to achieve performance targets established in the medium-term management plan, as well as to enhance corporate value sustainably and to encourage the holding of shared values with shareholders.
    • Specifically, the company shall adopt a performance-linked restricted stock compensation plan (performance share unit plan).
    • In principle, stock-based compensation will be linked to the rate of achievement of performance targets established in the medium-term management plan as an evaluation indicator. Performance indicators to be used as evaluation indicators shall be determined in accordance with the business importance of each item in the medium-term management plan.
    • The number of shares to be delivered as stock-based compensation for each individual director shall be determined according to the base amount for each eligible director, which shall be determined in consideration of the nature of each director’s duties, roles and responsibilities, and the compensation ratio of compensation components, multiplied by the rate of payment in accordance with the achievement of performance targets as of the end of the predetermined applicable period (in principle, the applicable period shall coincide with the period of the medium-term management plan). The range of performance payment rate shall be between 0% and 200%.
    • In delivering shares as stock-based compensation, the company shall, in principle, enter into a performance-linked restricted stock allotment agreement between the company and eligible directors, which shall include the following details.
      (i) Eligible directors shall not transfer, grant a security interest in, or otherwise dispose of company shares allotted until his or her retirement.
      (ii) The company shall acquire shares without compensation if certain events occur. Such events include when the Board of Directors determines that there has been a material breach of the appointment agreement, etc. between the Company and the relevant director during the term of office of the relevant director.
      (iii) Other details of the conditions for the release of restrictions on transfer, etc., established in advance by the Board of Directors.
    • In the event of resignation from the position of director or certain acts of non-compliance during the applicable period, the Company shall not provide stock-based compensation.
    • The delivery of restricted stock as stock-based compensation shall be made at a certain time after the end of each applicable period by granting monetary compensation claims in the proper proportion to eligible directors, who shall then contribute all such monetary compensation claims in kind upon the issuance of shares or disposal of treasury stock by the company.
  4. (4)The determination of the proportions of basic compensation, single-year bonuses, and share-based compensation is as follows.
    • The basic policy regarding composition of compensation for executive directors shall reflect higher proportions of single-year bonuses (short-term incentives) and stock-based compensation (medium- to long-term incentives). The purpose of this policy is to further strengthen the linkage of performance with medium- to long-term corporate growth and corporate value, as well as to encourage the holding of shared values with shareholders.
    • The ratio of compensation to executive directors shall be established so that the ratio of basic compensation, single-year bonuses, and stock-based compensation will be generally less than or equal to the respective ratios when the targets are achieved, in principle.
      Basic compensation : Single-year bonuses : Stock-based compensation = 45~47 :22~26 :26~33
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