Compensation System for Directors, Audit & Supervisory Board Members and Executive Officers

Compensation System for Directors, Audit & Supervisory Board Members and Executive Officers

The compensation system for Directors, Audit & Supervisory Board Members and Executive Officers is aimed at: (1) securing and retaining diverse, outstanding personnel to establish and enhance our competitive advantage; (2) driving concerted initiatives to promote sustainable enhancement of corporate value; and (3) sharing interests in common with shareholders. We introduce a performance-based share remuneration plan with the aim of boosting awareness of contributing to improvements in our corporate value over the mid-to long-term.
With respect to long-term incentives, we conduct multifaceted evaluations based on three perspectives: business growth evaluation indicators and ESG activity evaluation indicators, alongside management evaluation indicators that are measured through evaluations in compliance awareness surveys and other methods.
With respect to short-term incentives we have adopted EVA as motivation for long-term enhance corporate value, and the consolidated net sales and profit indicators as motivation for carrying out our daily business activities and fostering a sense of unity with our employees. In addition, from FY2023, the individual evaluation applied to all Directors except Outside Directors will be more flexible. The Company has also decided to introduce an evaluation confirmation process by Outside Directors and Outside Audit & Supervisory Board members to ensure objectivity and transparency.

Summary of Compensation System for Directors, Audit & Supervisory Board Members and Executive Officers

Base salary Short-term incentive compensation Long-term incentive compensation
Bonus Share incentive
EVA®-linked part Consolidated net sales/
profit-linked part
Individual performance
evaluation part
Method of
provision
Amount determined in
accordance with role and
rank, and provided as fixed
monthly compensation
Amount of bonus determined in accordance
with degree of achievement of single fiscal-
year targets and provided.
Kao shares, etc., are delivered within a five-year target period covered by the
current mid-term plan
・ Fixed part: Deliver a set number of shares, etc. each year
・ Variable part: Delivery of shares, etc. when executive officers resign from
their post in accordance with the results achieved in initiatives and activities
undertaken as part of the mid-term planThe compensation structure is set at
70% variable and 30% fixed.
Clawback No No Yes (in the case of a serious compliance violation, etc. by the individual in
question, the compensation may not be paid, or may be required to be
repaid)
Performance
evaluation
period
One year Five years (2021–2025)
Evaluation
indicator
EVA® ・Consolidated net sales
・ Income (Gross Profit
Less Selling and General
and Administrative
Expenses)
Individual performance
evaluation
Business growth ESG activities Top management
activities
Weight 25~35%
(Determined by position)
25~35%
(Determined by position)
30~50%
(Determined by position)
40% 40% 20%
Evaluation
criteria
Degree of target
achievement
Degree of target
achievement
Degree of year-on-year
improvement
Degree of OKR goals
achievement
Business
growth rate of
net sales,
profit, etc.
Evaluation by external
indicators, and extent of
achievement of internal goals
(such as the Kirei Lifestyle
Plan), etc.
Evaluation of
management
activities by Kao
employees, etc.
Coefficient/
Determination of
payout rate
The payout ratio is determined within the
range of 0–200% in accordance with the
degree of achievement of each indicator.
The coefficient for the variable part is determined within the range of 0–200%
in accordance with the degree of achievement of each indicator.
Compensation
structure
Bonus amount by position when the payout
ratio is 100%
・President and Chief Executive Officer: 50%
of base salary
・Executive Officers with titles: 40% of base
salary (except for the President and Chief
Executive Officer)
・Other Executive Officers: 30 to 35% of base salary
The yearly share remuneration amount when the variable component
coefficient is 100%
・ About 30 to 50% of the base salary of the position
Eligible for
provision
・Directors
・Executive Officers
・Audit & Supervisory
Board Members
・Directors (Except for Outside Directors)
・Executive Officers
・Directors (Except for Outside Directors)
・Executive Officers
Applicable
period
One year Five years (2021–2025)

Compensation Structure for Directors

Figure showing Compensation Structure for Directors. The compensation system for directors comprises the base salary, which is fixed compensation, and short-term and long-term incentive compensations, which are variable compensation. In the case of the Representative Director, President and Chief Executive Officer, the base salary, short-term incentive compensation and long-term incentive compensation account for 50%, 25% and 25%, respectively. The variable compensation depends on company and individual performance.

Compensation Paid to Directors in FY2022

(million yen)

Category Number of Members Aggregate
Amount of
Remuneration,
etc.
Components of Remuneration
Base Salary Short-term incentive
compensation
(performance-
based bonus)
Long-term incentive compensation
(Performance-based share incentive plan)
Variable portion Fixed portion
Directors
(including, in parentheses,
Outside Directors)
10 (5) 600 (75) 406 (75) 48 (-) 110 (-) 36 (-)
Audit & Supervisory
Board Members
(including, in parentheses,
Outside Audit &
Supervisory Board Members)
5 (3) 110 (43) 110 (43) - (-) - (-) - (-)
Total
(including, in parentheses,
Outside Directors and
Outside Audit & Supervisory
Board Members)
15 (8) 710 (118) 516 (118) 48 (-) 110 (-) 36 (-)
  • * 1 The above numbers of Directors/Audit & Supervisory Board Members include one Outside Director who resigned at the conclusion of the 116th Annual General Meeting of Shareholders held on March 25, 2022.
  • * 2 As for the variable portion of the long-term incentive compensation (performance-linked stock compensation), it will be determined after the end of the final year of the five fiscal years from 2021 to 2025, which are covered by the Company's Mid-term plan "K25." Therefore, the variable portion shown above is the amount of the allowance for the current fiscal year. For Directors of foreign national, we plan to pay cash equivalent to the variable portion of long-term incentive compensation (performance-based share incentive plan).
  • * 3 The maximum amounts of remuneration, etc. are as follows:
    (1) Maximum aggregate amount of remuneration, etc., to be paid to Directors:
    An annual amount of 630 million yen (as resolved at the 101st Annual General Meeting of Shareholders held on June 28, 2007). The Company had 15 Directors (including two Outside Directors) at the time such resolution was adopted. Such maximum aggregate amount includes the maximum annual amount of 100 million yen to be paid to Outside Directors (as resolved at the 110th Annual General Meeting of Shareholders held on March 25, 2016) but does not include the salary amounts, etc. to be paid to Directors who also serve as employees of the Company, for their service as employees. The Company had seven Directors (including three Outside Directors) at the time such resolution was adopted.
    Based on a resolution adopted at the 115th Annual General Meeting of Shareholders held on March 26, 2021, the Company has introduced a performance-based share incentive plan for its Directors (excluding Outside Directors) and its Executive Officers, which shall be applicable separately from the maximum aggregate amount of remuneration, etc., for the Directors. Under this share incentive plan, trust money of up to 3.65 billion yen is contributed concerning the fiscal years subject to the Company's mid-term plan (the initial period to be covered being the period of five fiscal years from the fiscal year ended December 31, 2021 to the fiscal year ending December 31, 2025), and the Company's shares are acquired through a trust and are then vested, etc., through the trust, based on the evaluation indicators consisting of growth potential evaluation indicators (such as the degree of growth in overall business sales and profit, etc.), ESG potential evaluation indicators (such as evaluation by external indicators), and management potential evaluation indicators (such as evaluation of management activities by the Company's employees). The Company had four Directors (excluding Outside Directors) at the time such resolution was adopted.

    (2) Maximum aggregate amount of remuneration, etc., to be paid to Audit & Supervisory Board Members:
    An annual amount of 120 million yen (as resolved at the 113th Annual General Meeting of Shareholders held on March 26, 2019). The Company had five Audit & Supervisory Board Members (including three Outside Audit & Supervisory Board Members) at the time such resolution was adopted.
  • * 4 Aggregate amount of remuneration, etc. paid to Outside Directors and Outside Audit & Supervisory Board Members by the Company's subsidiaries, etc., other than the aggregate amount of remuneration, etc. paid to Outside Directors and Outside Audit & Supervisory Board Members:Remuneration paid to one Outside Audit & Supervisory Board Member for his service as an Audit & Supervisory Board Member of Kao Group Customer Marketing Co., Ltd. was 4 million yen.

Compensation Paid for Individual Directors in FY2022

Name
(Director classification)
Aggregate amount of
remuneration
(Millions of yen)
Corporate
classification
Amount of remuneration by type (Millions of yen)
Base Salary Short-term incentive
compensation
(performance-based bonus)
Long-term incentive compensation
(Performance-based share incentive plan)
Variable portion Fixed portion
Michitaka Sawada
(Director)
130 Submitting company 104 0 18 8
Yoshihiro Hasebe
(Director)
147 Submitting company 87 19 29 12
  • * Only Director remuneration amounts totaling over 100 million yen are listed.
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