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News Navigator: Why are corporate executives' remunerations disclosed?
The Mainichi answers common questions that readers may have about why corporate executives who receive high-level remunerations are identified and their amounts disclosed.
Question: Major cosmetics company Shiseido Co. has recently announced the amount of its president's remuneration. Is it a rare move?
Answer: Japanese listed companies are supposed to disclose their business performance and financial situation in their annual financial reports. Even though all listed firms are legally required to announce the total amount of their board members' remunerations, they were not mandated at all to specify the amounts of individual board members' remunerations until recently. Therefore, most of the companies have withheld such information even though some companies, including semiconductor supplier Tokyo Electron Ltd., have voluntarily disclosed their chief executive officers' remuneration in their financial statements.
Q: How about listed companies in the United States?
A: They publicize remunerations for their top five board members, who have earned the largest amounts of pay over the previous three years. In Britain, listed firms announce all individual board members' remunerations. Most major industrialized democracies including Canada, Germany, France and Italy have their own regulations on the announcement of individual corporate executives' remunerations. The move is aimed at discouraging companies from paying excessive amounts of compensation to executives when their business performance is slumping.
Q: In Western countries, the transparency of board members' remunerations has been encouraged, hasn't it?
A: In Japan, too, the Financial Services Agency (FSA) revised regulations on the standards for information to be disclosed in companies' financial statements to obligate firms to identify their board members and auditors who earn at least 100 million yen a year and specify their exact amounts.
The new rules apply to corporate financial statements for fiscal 2009 that must be submitted to authorities by the end of June, or later. Some business leaders voiced opposition to the move due to privacy concerns, but the FSA justified it on the grounds that listed companies, for which numerous shareholders invest their funds, have a public mission and should publicize their specific information on relations between their business performances and remunerations for their executives.
Behind the move is the fact that State Minister for Financial Services Shizuka Kamei expressed displeasure at the fact that Shinsei Bank that ran deeply in the red last fiscal year pays huge amounts of compensation to board members who are from a foreign company that holds a stake in the bank. "Its president gets a mere 9 million yen, but each board member from a foreign stakeholder earn a ridiculously high remuneration of 150 million yen," Kamei complained.
Q: Why are only those who earn over 100 million yen subject to the rules?
A: The agency made the decision considering that the figure is the average amount of remunerations paid to chief executives officers of listed companies in the United States. However, the levels of remunerations for Japanese listed companies are lower than those in the United States and Europe. Fulltime board members of Japanese listed firms receive approximately 25 million yen on average. Therefore, most of Japanese listed companies will unlikely be required to disclose their individual board members' remunerations.
It is also notable that the new rules obligate listed companies to disclose their standards for calculating their executives' remunerations and how to determine the amounts. In other words, listed companies are required to fulfill their accountability for how they decide on compensation for their executives. (Answers by Masahiro Nakai, Economic News Department)
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(Mainichi Japan) June 4, 2010