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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 talent so as to establish and enhance competitive advantage, (2) promoting prioritized actions for realizing continuous increases in corporate value and (3) sharing interests in common with shareholders.
Starting in FY2017, we have introduced a performance-based share incentive plan for our Directors (excluding Outside Directors) and Executive Officers. Serving as a highly transparent and objective remuneration system that is closely linked to company performance, the performance-based share incentive plan aims to increase awareness of contributing to improvements in our financial performance and corporate value over the mid- to long-term.
Regarding Kao's share incentive plan, in order to promote the vision of "contributing to an 'enriched sustainable world' and growing the businesses of the company through proactive engagement in ESG activities and investment" which is one of the goals of K25 that was initiated in FY2021, we have made adjustments to the long-term incentive compensation indicators starting from FY2021.
As regards short-term incentive compensation, while the exact percentage varies between the President and Chief Executive Officer, Inside Directors and other Executive Officers, in all cases EVA and consolidated net sales and income are used as the evaluation indicators. EVA, which is a management indicator to which we attach great importance, has been adopted as an evaluation indicator in order to provide motivation for enhancing corporate value through the implementation of long-term strategies that contribute toward the resolution of ESG issues. With regard to the adoption of consolidated net sales and income as evaluation indicators, this represents a goal that is shared with ordinary employees. It provides motivation for realizing profitable growth through day-today business activities, and can help to foster a sense of unity with employees.

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
Method of
provision
Amount determined in
accordance with role and
rank, and provided as fxed
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)
Business growth ESG activities Top management
activities
Evaluation
criteria
Degree of target
achievement
Degree of target
achievement
Degree of year-on-year
improvement
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% of base salary
The yearly share remuneration amount when the variable component
coefficient is 100%
・ About 40% 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

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Compensation Paid to Directors in FY2021

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
(performance-
linked portion)
Fixed portion
Directors
(including, in parentheses,
Outside Directors)
8 (4) 467 (75) 324 (75) 39 (-) 73 (-) 31 (-)
Audit & Supervisory
Board Members
(including, in parentheses,
Outside Audit &
Supervisory Board Members)
6 (3) 82 (30) 82 (30) - (-) - (-) - (-)
Total
(including, in parentheses,
Outside Directors and
Outside Audit & Supervisory
Board Members)
14 (7) 549 (105) 406 (105) 39 (-) 73 (-) 31 (-)
  • * 1 The above numbers of Directors/Audit & Supervisory Board Members include one Audit & Supervisory Board Member who resigned at the conclusion of the 115th Annual General Meeting of Shareholders held on March 26, 2021.
  • * 2 As for the variable portion (performance-linked 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 medium-term management plan "K25". Therefore, the variable portion (performance-linked portion) shown above is the amount of the allowance for the current fiscal year.
  • * 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.

    (3) 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 FY2021

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
(performance-linked portion)
Fixed portion
Michitaka Sawada
(Director)
125 Submitting company 99 0 18 8
Yoshihiro Hasebe
(Director)
139 Submitting company 82 22 24 11
  • * Only Director remuneration amounts totaling over 100 million yen are listed.
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