Below is an excerpt from ISS-Corporate’s recently released paper “Japan’s Executive Pay Increasingly Mirroring European Models”. The full paper is available for download from the ISS-Corporate online library.
Key Takeaways
- Japanese executive pay has hit record highs, but transparency remains limited. Improving disclosures and remuneration committee independence are crucial as compensation-related AGM ballots decrease, while shareholder proposals are increasing.
- Japanese CEO pay is becoming more closely aligned with European peers in quantum and mix, showing balanced composition. However, even top Japanese auto and pharma firms’ pay falls below S&P 500’s lowest tier, with size and profitability playing minor roles.
- Japanese long-term incentive (LTI) metrics align well with global practices: 56% use TSR, often combined with earnings (63%) and return metrics (44%). Notably, 56% of firms adopt ESG metrics in LTIs, nearing European levels (68%), focusing on external ESG ratings for holistic performance evaluation.
Introduction
This article examines the evolving dynamics of CEO compensation in Japan, focusing on the Pharmaceutical and Automotive industries due to their highly globalized nature. These industries face intense international competition, requiring top talent and global market strategies, making them ideal for examining CEO compensation trends in Japan’s evolving corporate landscape.
Traditionally, Japanese CEO compensation has been modest compared to global standards, with an emphasis on stable fixed compensation, reflecting cultural norms of collective responsibility and lifetime employment. However, recent years have shown a gradual shift, particularly among companies with international board members or significant overseas revenues. This trend is partly driven by the need to attract and retain top talent within the management teams in an increasingly global market as well as desire to encourage greater risk-taking to increase corporate value.
By:
Ingo Tietboehl, Senior ESG Advisor, APAC, ISS-Corporate
Jun Frank, Global Head of Compensation & Governance Advisory, ISS-Corporate
