Remuneration for Directors, Audit &
Supervisory Board Members and Executive Officers

The Company regards the directors, audit & supervisory board members, and executive officers remuneration policy (remuneration policy for the executive officers including directors who concurrently serve as the executive officers) as an important matter for corporate governance. For this reason, in accordance with the following basic philosophy, the directors, audit & supervisory board members, and executive officers remuneration policy of the Company is deliberated in the Nomination & Remuneration Advisory Committee chaired by external directors by incorporating objective points of view, and the outcome is reported to the Board of Directors for the resolution.

1. 1. contribute to realizing the corporate mission;
2. 2. aim to provide the amount of remuneration commensurate with the Company’s capability to secure and maintain superior personnel in a global human resource market;
3. 3. aim to increase the corporate value over the long term and shall be designed to provide a strong motivation to achieve the Company’s long-term vision and medium-to-long-term strategy;
4. 4. have a mechanism incorporated to prevent overemphasis on short-term views while instilling motivation to achieve short-term goals;
5. 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 deliberations and evaluation processes;
6. 6. be designed to establish remuneration standards based on the significance (grade) of role/responsibility reflecting the mission of respective directors and executive officers, and differentiate remuneration according to the level of strategic target accomplished (achievements).

Based on the above basic philosophy, the Board of Directors of the Company has resolved its policy on decisions regarding matters including remuneration of individual directors.
The Company’s directors and executive officers remuneration policy, including an outline of the contents of the policy on decisions regarding matters including remuneration of individual directors, is described below in detail.

The remuneration of the directors and executive officers of the Company comprises “basic remuneration” as fixed remuneration as well as “annual bonus” and “long-term incentive-type remuneration (non-monetary remuneration)” as performance-linked remuneration, and the Company sets remuneration levels by making comparisons with companies in the same industry or of the same scale in Japan and overseas and by taking the Company’s financial condition into consideration. Matters including remuneration of individual directors are determined at the Board of Directors meetings after deliberations by the Nomination & Remuneration Advisory Committee. Matters including remuneration of individual directors for the fiscal year ended December 31, 2021 were deliberated on by the Nomination & Remuneration Advisory Committee according to the specific remuneration framework and indicators designed based on the policy on decisions regarding matters including remuneration of individual directors. They were then reported to the Board of Directors, and the Board of Directors made decisions on matters including remuneration in deference to the said report. The Company therefore determines that matters including remuneration are in line with the aforementioned policy on decisions.
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. Furthermore, the Company does not have an officers’ retirement benefit plan.

The Company designs basic remuneration in accordance with grades based on the size and level of responsibility of respective executive officers in charge, as well as the impact on business management of the Group. In addition, within a same grade, an increase of the amount is allowed within a certain range in accordance with the performance of respective directors or executive officers in the previous fiscal year (numerical business performance and personal performance evaluation). These allow the Company to ensure well-modulated basic remuneration as well, commensurate with the achievements of respective directors and executive officers.
Basic remuneration for respective executive officers is determined by the Board of Directors after deliberations by the Nomination & Remuneration Advisory Committee, and is paid in equal installments every month.
For external directors and audit & supervisory board members, the Company shall not pay basic remuneration that has a certain allowance for increase, but pay fixed remuneration only which is determined in accordance with their respective roles.

The performance-linked remuneration consists of an “annual bonus” provided as an incentive for achieving goals of single fiscal years, 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 achieve the goals to increase corporate value over the medium to long term. Accordingly, it is designed to motivate the directors and executive officers 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.

Of the performance-linked remuneration, the Company has set evaluation items for the annual bonus in accordance with the scope that respective directors and executive officers are in charge of, as described in the table below, in addition to the achievement rate of target consolidated net sales and consolidated operating profit which are financial indicators, as common performance indicators across directors and executive officers, and the range of changes in the percentage amount of payment is set between 0% and 200%. Although it is essential that the entire management team remain aware of matters involving net profit attributable to owners of parent, it is crucial that management not let the benchmark weigh too heavily on proactive efforts particularly involving future growth-oriented investment and resolving challenges with our sights set on achieving long-term growth. As such, upon the Nomination & Remuneration Advisory Committee deliberation, the Company has preliminarily established certain performance standards (thresholds) as described in the table below, with the evaluation framework designed so that the Nomination & Remuneration Advisory Committee will consider the possibility of lowering the percentage amount of the annual bonus payment attributable to the whole group performance component of the total annual bonus, if results fall below the thresholds. In determining the achievement rate of each target and threshold for consolidated net sales, consolidated operating profit and net profit attributable to owners of parent, actual performance may be adjusted by resolution of the Board of Directors following deliberation by the Nomination & Remuneration Advisory Committee. In cases where such adjustments are made, it shall be stated in the disclosure materials of the actual remuneration of directors.
In addition, we set the personal performance evaluation of all directors and corporate officers in order to add the level of achievement regarding strategic goals that cannot be measured by the financial performance figures alone, such as efforts for restructuring and reforming of the business platform to realize sustainable growth, to evaluation criteria.
Annual bonus is paid once a year.

The Company has introduced the long-term incentive-type remuneration policy (the “LTI”) that utilizes performance share units, a type of performance-linked stock remuneration, in order to give directors excluding external directors (the “Eligible Directors”) and executive officers additional motive to create corporate value over the long term and ensure they share interests with shareholders.

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:

1. i) promote efforts to create value by achieving our long-term vision and strategic goals,
2. ii) curb potential damage to the corporate value and maintain substantial corporate value over the long term,
3. iii) attract and retain talent capable of taking on leadership in business, and
4. iv) realize a “Global One Team” by fostering a sense of solidarity among management teams of the entire Shiseido Group and instilling the consciousness of participating in the running of the Company.

Under 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 whose evaluation period is for three years including the fiscal year related to the payment. The Company shall use the respective achievement ratios 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 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 the shares of the Company’s common stock of a number 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.

〔Structure of the LTI〕
The specific structure of the LTI is as follows:

• 1) The LTI has a performance-linked portion and a fixed portion.
• 2) The Board of Directors will determine the performance indicators to be used in the LTI, performance-linked coefficients, and other performance indicators and percentage amount of the payment attributable to the level of achievement, etc. of each performance indicator, etc. required for the specific calculation of the number of shares, etc. to be delivered to each Eligible Director. Given that it is difficult to predict the timing of the market recovery and develop a growth forecast due to the continuing spread of COVID-19 infections, the Company will maintain the financial indicators and use operating profit margin of 15%, a target under the medium-to-long-term strategy “WIN 2023 and Beyond,” as a committed target for the final fiscal year of the evaluation period. Since growth in sales is essential when focusing most on the accomplishment of the operating profit margin target, the Company will also maintain the target for sales growth rate and use it as the performance indicator related to economic value. In addition, recognizing that business activities conscious of social value are important in realizing sustainable growth, the Company will increase its evaluation weight for social value indicators from fiscal 2022.
• 3)The overall picture of the performance indicators and their weights under the LTI is shown in the table below. The target for the indicator related to economic value, which is the consolidated operating profit margin for the final fiscal year of the evaluation period, is 15%, and if the target is achieved, the maximum percentage of the payment attributable to this indicator will be applied. In addition, the lower limit for evaluation is set at 10%, and if performance falls short of this limit, the performance-linked portion for this indicator will not be paid. As for the CAGR of consolidated net sales for the evaluation period, if performance achieves the 7% level, the maximum percentage amount of the payment attributable to this indicator will be applied, and if performance falls short of 4%, the performance-linked portion for this indicator will not be paid. The CAGR of consolidated net sales will be calculated based on the performance in fiscal 2019 net sales of business/brand transferred as the starting point before the Company was impacted by COVID-19. In regard to indicators related to social value, the structure of the LTI presupposes that targets are established for multiple internal and external indicators related to environment, society, and corporate governance (ESG) as presented in the table below, and the percentage amount of the payment will fluctuate according to the level of achievement of these targets. In particular, from this year, reducing CO2 emissions, which is an important initiative under the Company’s sustainability strategies, is newly set as an environmental indicator. As a result of this, the Company has increased the evaluation weight of the indicators for social value to 20% from 10%. Additionally, it is essential that the Company remains aware of matters related to consolidated return on equity (ROE). However, it is crucial that it does not permit such benchmarks to weigh too heavily on proactive initiatives to resolve such issues as those related to future growth-oriented investments and long-term expansion . As such, upon the Nomination & Remuneration Advisory Committee deliberation, the Company has established certain performance standards (thresholds) in advance, with the evaluation framework designed so that the Nomination & Remuneration Advisory Committee will consider lowering the percentage amount of the payment attributable to the performance-linked portion, if results fall below the thresholds.

• 4) After the end of the evaluation period, the Board of Directors shall determine the number of shares of the Company’s common stock to be allotted to each Eligible Director and the amount of cash to be paid, following deliberation by the Nomination & Remuneration Advisory Committee, in accordance with calculation method determined in advance, based on the percentage amount of the payment determined in accordance with the level of achievement of each performance indicator, etc.
• 5) Pursuant to a resolution by the Board of Directors, the Company will pay monetary remuneration claims for the delivery of the Company’s common stock to each Eligible Director, in accordance with the number of shares of the Company’s common stock to be allotted to each Eligible Director as determined in item 4), and each Eligible Director will receive delivery of the Company’s common stock by providing all of the monetary remuneration claims as contributions in kind. Furthermore, the amount paid for the Company’s common stock will be determined by the Company’s Board of Directors based on the share price at time of delivery within a range that is not especially advantageous for each Eligible Director subscribing to the Company’s common stock.
• 6) Each Eligible Director will incur tax expenses in accordance with the delivery of the Company’s shares as described in item 5), and therefore the Company will pay each Eligible Director an amount of cash determined in item 4) in addition to the monetary remuneration claims in item 5), in order to secure funds for these tax expenses.
• 7) Conditions for the delivery of shares to each Eligible Director and other details will be determined by the Board of Directors.

Under the LTI, the Company has introduced the malus and clawback provisions. In certain conditions, such as in case of serious misconduct of Eligible Directors, the Board of Directors is entitled to make the decision to reduce the number of the share units or receive a refund.

In addition, the Company is gradually extending payment of LTI to principals global executive persons, with the aim of realizing a “Global One Team” by fostering a sense of solidarity among management teams around the world and instilling the consciousness of participating in the running of the Company.