Executive compensation system(Design)
Matters related to determining the amount and calculation method of executive compensation
At the meeting of the Board of Directors on February 5, 2021, we have resolved the decision policy on individual executive compensation. Prior to the resolution by the meeting of the Board of Directors, the items to be resolved were already brought to the compensation committee, and the answers were obtained.
In addition, the meeting of the Board of Directors has confirmed that the decision method of the compensation details and the resolved compensations are complied with the decision policy, and that the answers from the compensation committee are respected, and are complied with the decision policy.
The JEOL’ Basic Policy on Directors Compensation is outlined below.
Basic Policy on Executive Compensation
JEOL’s executive compensation helps to motivate management to achieve our management goals, in turn raising awareness of contributions to boost performance through medium- to long-term improvement of our corporate value. Our compensation system is designed to promote profit awareness among shareholders and to raise awareness of shareholder-oriented management.
Compensation for directors consists of basic compensation (monetary reward) and performance-linked stock compensation. However, outside directors who are responsible for supervision and non-executive directors receive only fixed basic compensation in view of their jobs.
JEOL establishes incentives for improving business performance after considering the business environment surrounding the Company, the salary level of others, and salary levels at other companies in the same industry.
Determining Basic Compensation
Basic compensation is determined based on a compensation table for every position and performance achievement, which is prepared using the basic policy for determining compensation. The table helps to determine the standard compensation for every director position. This amount can vary from 85% to 115% of the standard amount according to the degree of achievement of key performance indicators (KPIs). KPIs include those for achieving the goals for (1) consolidated net sales and (2) consolidated operating income. However, outside directors and non-executive directors are not paid performance compensation, and their basic compensation is set after considering the business environment surrounding the Company, the salary level of employees, and salary levels at other companies in the same industry.
Determining Performance-Linked Stock Compensation
In determining performance-linked stock compensation, directors are awarded points that are calculated by multiplying the position-based points (based on the basic policy for determining compensation) by a performance-linked coefficient (50% to 170%). The coefficient is calculated from the degree of achievement against target KPIs: (1) consolidated net sales, (2) consolidated ordinary profit, (3) ROE. Note that 1 point is equivalent to 1 shares of the Company. However, if an event occurs for which point adjustments are considered justified, such as stock splits and reverse stock splits, the number of shares per point will be adjusted based on the split ratio, reverse split ratio, etc. For directors living overseas, monetary compensation equivalent to the number of points is to be paid to them.
Structure of Director Compensation
Guided by the basic policy for determining compensation, the ratio of basic compensation to performance-linked stock compensation is determined with a target of 80% for basic and 20% for performance-linked stock compensation. However, outside directors and non-executive directors rare not eligible for performance-linked stock compensation, receiving only fixed basic compensation that does not consider their performance.
Policies on Timing and Condition of Compensation
The amount of basic compensation and the number of performance-linked stock compensation points (including the amount of money equivalent to the number of points to be granted to foreign residents) for one year shall be determined at the meeting of the Board of Directors held after the conclusion of the Ordinary General Meeting of Shareholders each year. The payment period of the basis compensation and the amount of money equivalent to the number of points to be granted to foreign residents shall be one year from July of the month following the above-mentioned meeting of the Board of Directors to June of the following year. With respect to the performance-linked stock compensation, upon retirement of a director who is eligible for payment (excluding retirement due to death), the Company's shares and the amount of money to be paid in exchange for shares of the Company shall be paid to the director. In the event of the death of a director who is eligible for the payment, the Company shall convert the Company shares corresponding to the number of points granted at that time into cash and deliver cash equivalent to the amount of the conversion price to the heirs of such director. In the event that a director eligible for payment becomes a foreign resident due to overseas assignment prior to his/her retirement, the shares of the Company corresponding to the number of points granted at that time shall be converted into cash and the equivalent amount shall be delivered to the director.
The Compensation Committee (an advisory body to the Board of Directors), chaired by an outside director and consisting of a majority of outside directors, shall deliberate on the content, amount and number of individual director compensation, and after reporting the results to the Board of Directors, the Board of Directors shall resolve the content, amount and number of individual director compensation.
Other Important Matters
With respect to the performance-linked stock compensation, a malus clause shall be established where in the event of a serious violation of duties or a serious violation of internal regulations by an eligible person prior to the date of determination of beneficial ownership, the Company stocks and proceeds from the sale of stocks shall not be delivered or provided to such person under this plan.
(Reference) As of October 1, 2018, the Company conducted reverse stock split which was to make two stocks into one stock. Therefore, in calculating the performance-linked stock compensation, the points granted prior to June 1, 2022 shall be multiplied by 0.5 and then one point shall be treated as one share.
Resolution at Ordinary General Meeting of Shareholders Compensation of Directors and Audit & Supervisory Board Members
The amount of basic compensation for directors was resolved at the 72th Ordinary General Meeting of Shareholders held on June 26, 2019 to be no more than 600 million yen per year (including no more than 30 million yen per year for outside directors) (not including employee salaries for directors who also serve as employees). As of the close of this General Meeting of Shareholders, the number of directors was 9(including 2 outside directors). Then at the 74th Ordinary General Meeting of Shareholders held on June 25, 2021, The amount of compensation for directors was resolved as it is, and the compensation for outside directors to be no more than 50 million yen per year (not including employee salaries for directors who also serve as employees). As of the close of this General Meeting of Shareholders, the number of directors was 9 (including 3 outside directors).
Separately from the basic compensation, at the 71st Ordinary General Meeting of Shareholders held on June 27, 2018, the maximum amount of money to be contributed by the Company to the board benefit trust for performance-linked stock compensation was resolved to be a total of 720 million yen for the subject period consisting of three fiscal years (except for the four fiscal years from FY2018 through FY2021 where the Company will contribute a total of 960 million yen), the maximum total number of points to be granted as stock compensation is 430,000 per fiscal year (equivalent to 215,000 shares of the Company's stock after the reverse stock split, as the Company conducted a reverse stock split on October 1, 2018, whereby two shares were made into one share).(Outside directors, non-executive directors and foreign residents are not eligible for the payment, including executive officers residing in Japan).
The number of directors (excluding outside directors, non-executive directors, and foreign residents) at the end of this General Meeting of Shareholders was 7. Since executive officers are also eligible for this plan, the number of directors and executive officers eligible for this compensation plan at the close of this General Meeting of Shareholders is 18.
The amount of basic compensation for audit & supervisory board members was resolved at the 72nd Ordinary General Meeting of Shareholders held on June 26, 2019 to be no more than 80 million yen per year. The number of audit & supervisory board members at the conclusion of the said General Meeting of Shareholders was 4.