REMUNERATIONRemuneration for Directors, Audit & Supervisory Board Members and Corporate Officers
Overview of the Policy for Remuneration for Directors, Audit & Supervisory Board Members and Corporate Officers
The Company regards the remuneration policy for directors, Audit & Supervisory Board members, and corporate officers as an important matter for corporate governance. The policy is therefore designed by the Remuneration Advisory Committee, chaired by an external director, based on the following basic philosophy while incorporating objective points of view. Remuneration for directors and corporate officers consists of basic remuneration and performance-linked remuneration.
The remuneration policy for directors, Audit & Supervisory Board members, and corporate officers shall
1. contribute to realizing the corporate mission;
2. be designed to provide the amount of remuneration commensurate with the Company’s capability to secure and maintain superior personnel;
3. be designed to reflect the Company’s medium-to-long-term business strategy, and to strongly motivate directors, Audit & Supervisory Board members, and corporate officers eligible for remuneration to achieve medium-to-long-term growth;
4. have a mechanism incorporated to prevent wrongdoing and overemphasis on short-term views; and
5. be designed to be transparent, fair, and reasonable from the viewpoint of accountability to stakeholders including shareholders and employees, and shall ensure these points by determining remuneration through appropriate processes.
The Company sets appropriate remuneration levels by making comparisons with companies in the same industry or of the same scale in Japan and overseas, taking the Company’s financial condition into consideration.
External directors and Audit & Supervisory Board members receive only basic remuneration, as fluctuating remuneration such as performance-linked remuneration is inconsistent with their supervisory functions from a stance independent from business execution. Shiseido also abolished its officers’ retirement benefit plan as of June 29, 2004, the date of the 104th Ordinary General Meeting of Shareholders.
Directors, Audit & Supervisory Board Members and Corporate Officers Remuneration Aligned to the Three-Year Plan for Fiscal 2018 through Fiscal 2020
The Company has dedicated the three years from fiscal 2018 through fiscal 2020 to pursuing new strategies aimed at accelerating growth.
From fiscal 2018 through fiscal 2020, the Company will hasten growth by creating a virtuous cycle while continuing to pursue structural reforms, and will accordingly design the remuneration scheme to place more focus on the notion of “pay linked to the corporate mission,” which constitutes a step beyond the notion of “pay for performance” whereby remuneration paid to an officer reflects his or her accomplishments. Under the notion of “pay linked to the corporate mission,” the Company evaluates the extent to which long-term strategies reflecting its management approach and Corporate Philosophy have been achieved, in addition to considering net sales, operating profit, and other quantitative financial results.
Furthermore, given that the Company has achieved some of its financial targets set forth in its VISION 2020 quantitative targets three years ahead of schedule, in 2018, its set new long-term targets of net sales of ¥2 trillion yen and operating profit of ¥300 billion yen, geared to further achieving sustainable growth over the long term with its sights set on goals further off into the future. As such, the Company will introduce performance-linked stock remuneration as a new long-term incentive type remuneration (LTI), wherein performance share units will replace the existing stock compensation-type stock opinions, to take effect in fiscal 2019.
Proportion of Remuneration by Remuneration Type for Each Rank of Director
Remuneration Type for Each Rank of Director
1. In this model, the basic remuneration amount is the median of the applicable role grade, and the amount paid for performance-linked remuneration is based on 100% of a reference amount determined by the Company. The proportions stated above may change depending on changes in the Company’s performance and changes in the share price.
2. There is no difference in the proportion of remuneration by remuneration type applied to directors based on whether a director has a representation right or otherwise.
3. Because different remuneration tables will be applied depending on the role grade of respective directors and corporate officers, proportions of remuneration by remuneration type will vary even within a same rank.
4. A fixed amount of remuneration separately provided in accordance with roles such as Chairman of the Board is not included in the table.
Performance indicators and evaluation weights for annual bonus
There is no difference in the performance indicators and the weight of performance indicators applied to directors based on whether a director has a representation right or otherwise.
Basic remuneration corresponds to each officer’s role grade, which is based on the scale and scope of their responsibilities and impact on Group management. Moreover, basic remuneration may increase within the same role grade within a designated range in accordance with the performance of respective directors or corporate officers in the previous fiscal year in terms of numerical business performance and personal performance evaluation. This mechanism allows the Company to adjust basic remuneration in light of the achievements of respective directors and corporate officers.
The Company will continue to pay external directors and Audit & Supervisory Board members fixed basic remuneration with no variable component as under the previous system.
The Company has determined evaluation items for the annual bonus linked to performance in accordance with the scope of responsibilities of the respective director or corporate officer as described in the table below. The achievement rates for consolidated net sales and consolidated operating profit targets are common performance indicators used for all directors and corporate officers. Although it is essential that the entire management team remains aware of matters involving net profit attributable to owners of parent, it is also crucial that management not allow such a benchmark to weigh too heavily on proactive efforts particularly involving future growth-oriented investment. As such, after deliberations by the Remuneration Advisory Committee, the Company has provisionally established certain standards (thresholds) as described in the table above, with the evaluation framework designed so that the Remuneration Advisory Committee will consider the possibility of lowering the percentage amount of the annual bonus payment attributable to the Company-wide performance component of the total annual bonus, if results fall below the thresholds. In addition, as was the case for remuneration policy up to 2017, the Company has set personal performance evaluation components for all directors and corporate officers to provide a standard for evaluating the level of achievement of strategic goals in initiatives that cannot be measured with financial performance data, such as rebuilding the business foundation for sustainable growth.
Long-Term Incentive-Type Remuneration (LTI)
Performance-Linked Stock Compensation / Performance Share Units (from Fiscal 2019)
Purposes of introducing the LTI
The LTI is adopted for the purposes of establishing effective incentives for creating and maintaining corporate value over the long term, and ensuring that the directors’ interests consistently align with those of our shareholders.
To such ends, the LTI will help:
i) promote efforts to create value by achieving our long-term vision and strategic goals,
ii) curb potential damage to the corporate value and maintain substantial corporate value over the long-term,
iii) attract and retain talent capable of taking on leadership in business, and
iv) realize a “Global One Team” by fostering a sense of solidarity among management teams of the entire Shiseido Group and instill the consciousness of participating in the running of the Company.
Under the LTI, performance share units are adopted to act as a type of performance-linked stock compensation in lieu of the stock compensation-type stock options granted annually thus far. With respect to the Company’s performance share units, the Company will allot a reference share unit to each of the eligible parties once every fiscal year, and on each annual allotment, the number of fiscal years that the payment relates to shall be one fiscal year. To make such allotments, the Company shall establish multiple performance indicators beforehand, and three fiscal years, including the fiscal year that the payment relates to, shall be used as the evaluation period. The Company shall use the respective achievement ratios of each performance indicator to calculate the payment rate after the end of the evaluation period, and it shall use the payment rate to increase or decrease the number of share units. The eligible parties shall be paid monetary remuneration claims and cash for the delivery of a number of shares of the Company’s common stock corresponding to the applicable number of share units, and then each eligible party shall receive delivery of shares of common stock of the Company by paying all the monetary remuneration claims using the method of contribution in kind.
The financial benefits ultimately gained by the eligible parties are linked not only to performance outcomes associated with the performance indicators, but also to the Company’s share price. As such, the LTI substantially links the financial benefits with both performance and the Company’s share price. Meanwhile, it features a fixed portion involving a set payment in addition to its performance-linked portion, thereby emphasizing the notion of consistently granting stock compensation to the eligible parties. As such, the LTI is designed to help eligible parties realize the aims of more robustly ensuring that their sense of interests consistently aligns with those of our shareholders, curbing potential damage to corporate value and maintaining substantial corporate value over the long term, and helping to attract and retain competent talent.
Model for number of share units/payment rate for the LTI
The performance indicators are determined by the Board of Directors upon the matter having been adequately deliberated on by the Remuneration Advisory Committee. To achieve our long-term targets, the performance indicators are configured so that the LTI underpins efforts to enhance our corporate value in terms of both economic value and social value. As such, the performance indicators include (as benchmarks to measure economic corporate value): compound average growth rates (CAGR) of both consolidated net sales and consolidated operating profit; and (as benchmarks pertaining to social value) multiple internal and external environmental, social and governance (ESG) indicators with special emphasis placed on the area of “empowered beauty,” in which we aim to achieve our notion of beauty innovation through providing support to others. Moreover, the performance indicators now also include consolidated return on equity (ROE) which acts as an important benchmark for measuring corporate value from the perspective of establishing a sense of common interests with our shareholders.
Among the performance indicators, we have set target values and minimum values for each CAGR for consolidated net sales and consolidated operating profit. Accordingly, the Company will apply the maximum percentage amount of payment attributable to each of the indicators in the event that the target values are achieved, and the Company does not make payment of the performance-linked portion with respect to each of those indicators in the event that performance falls short of the minimum values. As for environmental, social and governance (ESG) indicators, upon having determined whether each of the multiple benchmarks have been achieved or not, we will set the maximum percentage amount of payment attributable to each of the benchmarks in the event that the targets have been achieved, and will not make payment of the performance-linked portion with respect to each of the benchmarks in the event that the targets have not been achieved. In terms of consolidated return on equity (ROE), as we deem it necessary to ensure that our focus on that benchmark doesn’t excessively impede our active efforts with respect to investing in future growth and resolving challenges with our sights set on achieving long-term growth, we will set preliminary ROE targets at certain thresholds per deliberations carried out in that regard by the Remuneration Advisory Committee, and the committee will then discuss the notion of lowering the percentage amount of payment of the performance-linked portion in the event that consolidated ROE falls below such thresholds.
In addition, the LTI is designed with a view to extending payment to management teams at regional headquarters outside of Japan in the future, with the aim of realizing a “Global One Team” by fostering a sense of solidarity among management teams around the world and promoting a participatory approach to business.
Performance indicators and evaluation weights for performance-linked portion of the LTI
Long-Term Incentive-Type Remuneration Until Fiscal 2018
Until fiscal 2018, as long-term incentive-type remuneration included in performance-linked remuneration, we applied a stock compensation-type stock option using stock acquisition rights as stock options with an amount of 1 yen invested when exercising a stock acquisition right as a means of paying stock as compensation, etc., instead of cash-based compensation, etc. The limits on this long-term incentive-type remuneration apply on two occasions: when the stock acquisition rights are allotted, and when the allotted stock acquisition rights have vested. When actually allotting the stock acquisition rights after obtaining approval for the maximum number of stock acquisition rights to be allotted at the General Meeting of Shareholders, the Company shall increase or decrease the number of stock acquisition rights to be granted in the range of 0 to the maximum by using the performance indicators for annual bonuses for the preceding fiscal year. In addition, the Company has introduced a mechanism when the stock acquisition rights vest that limits the exercise of stock acquisition rights to 30 to 100 percent of the allotted number, according to consolidated results and other indicators up to the preceding fiscal year.
Remuneration for Directors and Audit & Supervisory Board Members for the Year Ended December 2018
1. Basic remuneration for directors has a ceiling of ¥2.0 billion annually (including a total of ¥0.2 billion or less for external directors) as per the resolution of the 118th ordinary general meeting of shareholders held on March 27, 2018. Basic remuneration for audit & supervisory board members has a ceiling of \10 million per month as per the resolution of the 105th ordinary general meeting of shareholders held on June 29, 2005.
2. The amount to be paid as bonuses to directors for fiscal 2018 indicated above is the amount that the Board of Directors has resolved to pay, such that is within the ceiling amount as stated above in Note 1. The sum total of the amount to be paid for the aforementioned bonuses and the amount paid as basic remuneration in fiscal 2018 is within the ceiling amount as stated above in Note 1.
3. The amount of long-term incentive-type remuneration (stock options) indicated above represents the expenses associated with the fiscal year among the stock options (share acquisition rights) in the fiscal year, upon the approval of the ordinary general meeting of shareholders, in consideration of duties executed by directors.
4. In addition to the above payments, other remuneration, etc. of ¥25 million was recorded for the fiscal year ended December 31, 2018 as expenses associated with stock options granted to two directors of the Company, at the time the directors served as corporate officers not holding the office of directors.
5. None of the directors or the audit & supervisory board members will be paid remuneration other than described above (including that described in notes 1 through 4).
Remuneration by Type to Representative Directors and Directors Whose Total Remuneration Exceeded 100 Million Yen for the Year Ended December 2017
1. The above amount to be paid as bonuses to directors for fiscal 2018 is the amount that the Board of Directors has resolved to pay, such that is within the ceiling of ¥2.0 billion annually (including a total of ¥0.2 billion or less for external directors) as per the resolution of the 118th ordinary general meeting of shareholders held on March 27, 2018.
2. The amount of long-term incentive-type remuneration (stock options) indicated above represents the expenses associated with the fiscal year among the stock options (share acquisition rights) in the fiscal year, upon the approval of the ordinary general meeting of shareholders, in consideration of duties executed by directors.
3. In addition to the above payments, there are other remuneration, etc. of ¥6 million recorded for the fiscal year ended December 31, 2018 as expenses associated with stock options granted to Representative Director Jun Aoki at the time he served as corporate officer not holding the office of director.
4. None of the two directors above will be paid remuneration other than described above (including that described in notes 1 through 3).