Director Remuneration
This section summarizes how the remuneration of directors of a Japanese company (kabushiki kaisha) is determined and disclosed.
Related: Shareholder Rights; Governance Structures
Determination of amounts
Under the Companies Act of Japan, all directors’ remuneration – whether fixed, performance-based, or in the form of equity instrument – must be approved at a shareholders’ meetingShareholder Rights). The exception is that, in the case of a company with a Three-Committee Structure, the remuneration committee has the authority to make this decisionGovernance Structures).
A common practice is for shareholders to approve only the maximum total remuneration for the entire board, while the authority to determine the remuneration for each individual director is then delegated to the board and further delegated to a representative director.
Under the Companies Act, unless the remuneration of each individual director is directly approved by the shareholders, the board must establish policies for determining each director’s remuneration and disclose these policies in the company’s annual report.
Disclosure of amounts
Under the Companies Act, there is no requirement to disclose the remuneration of individual directors. However, the Financial Instruments and Exchange Act requires the disclosure of the individual remuneration amounts for directors, executive officers, and corporate auditors whose annual remuneration is JPY 100 million or more.
Corporate Governance Code requirements
The Corporate Governance Code established by the Tokyo Stock Exchange requires TSE-listed companies to ensure the objectivity and transparency of remuneration for directors and officers.
Additionally, the Code requires, on a ‘comply or explain’ basis, a remuneration committee to be established under the board of directors, even if they have not adopted a Three-Committee Structure. Governance Structures)
For companies listed on the Prime Market, the Code further requires that a majority of the committee members to be “Independent Outside Directors” and to disclose how the independence of the committee is ensured, as well as the powers and responsibilities assigned to it.
Since these requirements are ‘comply or explain’ requirements, a company may choose not to comply by providing an explanation for its decision to opt-out. Key Laws, Regulations and Guidelines)