Remuneration for Directors, Corporate Executive Officers and Officers

The Company regards the remuneration policy for Directors, Corporate Executive Officers, Chief Officers and Division Officers (hereinafter collectively referred as "Officer".) as an important matter for corporate governance. For this reason, in accordance with the following basic philosophy: the Directors, Corporate Executive Officers and Officers remuneration policy of the Company is deliberated and determined in the Compensation Committee, which comprises five Independent External Directors, to incorporate objective points of view.

Based on the above basic philosophy, the Compensation Committee of the Company has resolved its policy on decisions regarding matters including remuneration, etc. of individual Directors, Corporate Executive Officers and Officers. The Company’s Directors, Corporate Executive Officers and Officers remuneration policy, including an outline of the policy on decisions regarding matters including remuneration, etc. of individual Directors, Corporate Executive Officers and Officers, is described below.

The remuneration of Corporate Executive Officers (including those who concurrently assume the position of Directors) and Officers of the Company comprises “basic remuneration” as fixed remuneration as well as “annual incentive” and “long-term incentive-type remuneration (non-monetary remuneration)” as performance-linked remuneration, and the Company sets remuneration levels by benchmarking peer companies in the same business industry or in the similar business size inside or outside Japan and by taking the Company’s financial condition into consideration. Matters including the remuneration, etc. of individual Corporate Executive Officers and Officers are deliberated on and determined by the Compensation Committee, while taking into consideration the social conditions and economic situation surrounding the Company according to the specific remuneration framework and indicators designed based on the policy on decisions regarding matters including remuneration, etc. of individual Directors, Corporate Executive Officers and Officers.
All of the Company’s Corporate Executive Officers concurrently serve as Officers, and their remuneration is determined based on factors such as grades established according to the size of the roles they fulfill as Officers. The remuneration for each Officer is designed to allow for merit increases within a certain range based on personal performance evaluations, etc., ensuring that the Company can reward the achievements of each Officer.
Given that the expected roles of Directors are to oversee execution and provide management advice, the remuneration of Non-Executive Directors, including Executive Directors, consists solely of fixed remuneration (basic remuneration). The structure ensures that they can fulfill these roles from an independent standpoint, unaffected by fluctuations in business performance.
In addition, in the case of Directors who also serve as Corporate Executive Officers, remuneration for their service as a Director is not included in this remuneration. Furthermore, the Company does not have an Officers' retirement benefit plan.

The proportion of remuneration is set by Grade based on the significance of the role and responsibilities, and the higher the Grade becomes, the higher the proportion of performance-linked remuneration becomes.

Basic remuneration as fixed remuneration, the Company designs basic remuneration in accordance with Grades based on the significance of the role and responsibilities assumed by each Corporate Executive Officer and Officer. In addition, basic remuneration for Non-Executive Directors, including External Directors, is determined based on factors such as comparisons with other companies and the Company's financial position. Basic remuneration is paid on a monthly basis.

The performance-linked remuneration consists of an “annual incentive” provided as an incentive for achieving goals for the corresponding fiscal year, and “performance-linked stock compensation (performance share units) as long-term incentive-type remuneration” provided with the aims of establishing a sense of common interests with the shareholders and instilling motivation to enhance corporate value over the medium to long term. Accordingly, it is designed to motivate Corporate Executive Officers and Officers of the Company to manage business operations while being more conscious about the Company’s performance and share price from the perspectives of not only a single year but also over the medium to long term.

The Company has set evaluation items for the annual incentive in accordance with the business performance of Corporate Executive Officers and Officers as described in the following table, in addition to the achievement rate of target consolidated net sales and core operating profit, which are financial indicators, as common performance indicators across all Corporate Executive Officers and Officers. In addition, for all Corporate Executive Officers and Officers, the Company has set a personal performance evaluation component. This is designed to incorporate the achievement of strategic objectives that cannot be measured solely by financial performance figures, such as initiatives for transformation and the restructuring of business foundations to achieve sustainable growth. The range of changes in the percentage amount of payment is set between 0% and 200%. In assessing the achievement rates of the respective targets for consolidated net sales and core operation profit, actual performance may be adjusted based on deliberation and resolution of the Compensation Committee. In the case that such adjustments are made, it will be disclosed in the materials related to the actual remuneration of Corporate Executive Officers.
Annual incentive is paid once a year.

The Company has established the following objectives for introducing the long-term incentive-type (LTI) remuneration and has adopted performance share units, a type of performance-linked stock compensation, to incentivize Corporate Executive Officers and Officers to create corporate value over the medium to long term.
Furthermore, based on the following objectives, the Company also includes key domestic and overseas executives and employees in the scope of eligibility for the LTI.

Under the Company’s performance share units, the Company grants a reference share unit to each of the eligible parties once every fiscal year, and on each annual grant, the payment relates to the respective fiscal years. To make such grants, the Company establishes multiple performance indicators with an evaluation period of three fiscal years including the fiscal year related to the payment. The Company uses the respective results of each performance indicator to calculate the payment rate in a range from 50% to 150% after the end of the evaluation period, and it uses the payment rate to increase or decrease the number of share units. The eligible parties are paid monetary remuneration claims for the delivery of the shares of the Company’s common stock and cash corresponding to the applicable number of share units, and then each eligible party receives delivery of shares of common stock of the Company by paying all the monetary remuneration claims using the method of contribution in kind. Furthermore, in order to realize the aims of consistently aligning the sense of interests with those of our shareholders, curbing potential damage to corporate value, maintaining substantial corporate value over the long term, and attracting and retaining competent talent, the Company sets a minimum payout rate of 50%, establishing a fixed portion in addition to the performance-linked portion.
Regarding evaluation indicators for the long-term incentive-type remuneration in fiscal year 2026, as an indicator for economic value of corporate value, the Company has set relative TSR (Total Shareholder's Return) from fiscal year 2026 to fiscal year 2028 with a global peer group, which is an indicator of shareholder value enhancement and ROIC (Return On Invested Capital) which is an indicator of the capital efficiency metric. Furthermore, the Company has adopted multiple internal and external indicators related to Environmental, Social, and Governance (ESG) as performance metrics for social value. This structure is designed to promote the enhancement of corporate value from the perspectives of both economic and social value. In assessing the level of achievement of the capital efficiency indicator (ROIC: Return on Invested Capital), the actual results may be adjusted on deliberations and resolutions of the Compensation Committee. In the case that such adjustments are made, it will be disclosed in the materials related to the actual remuneration of Corporate Executive Officers.
To receive payments under the LTI, eligible parties are required to have served continuously in the position of Corporate Executive Officer or Officer during a certain period set in advance.
The Company adopts the malus and clawback provisions with regard to performance share units. Specifically, under certain conditions, such as in case of serious misconduct of a person eligible for payment, the Compensation Committee may, based on its decision, reduce the number of share units or receive a refund.