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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 FY2020

Classification Number of persons
(Persons)
Aggregate amount of
remuneration
(Millions of yen)
Amount of remuneration by type
(Millions of yen)
Base salary Bonus Performance-based
share incentive
Directors
(of Outside Directors)
8 (4) 240 (75) 268 (75) 83 (-) -111 (-)
Audit & Supervisory
Board Members
(of Outside Audit &
Supervisory Board Members)
6 (4) 81 (30) 81 (30) - (-) - (-)
Total (of Outside Directors
and Audit & Supervisory
Board Members)
14 (8) 321 (105) 349 (105) 83 (-) -111 (-)
  • * 1 The above numbers of Directors/Audit & Supervisory Board Members include one Outside Audit & Supervisory Board Member who resigned at the conclusion of the 114th Annual General Meeting of Shareholders held on March 25, 2020.
  • * 2 Regarding performance-based share incentives, as the most recent fiscal year was the final year of implementation of the Kao Group Mid-term Plan K20, performance-based share incentives were confirmed after the conclusion of the final year of implementation of K20, with the inclusion of the performance-based part for the final year. The amount obtained by deducting an amount equivalent to the fixed part of the performance-based share incentives paid up until the most recent fiscal year from the cumulative total disclosed for the period up until the previous fiscal year exceeded the confirmed amount, with the amount of reversal for prior period provisions based on the level of achievement of K20 performance objectives being 216 million yen. As the amount of provisions booked for the most recent fiscal year was 105 million yen, the disparity was shown as a decrease in the above table.

Compensation Paid for Individual Directors in FY2020

Name (Director classification) Aggregate amount
of remuneration
(Millions of yen)
Corporate
classification
Amount of remuneration by type (Millions of yen)
Base salary Bonus Performance-based
share incentive
Michitaka Sawada (Director) 82 Submitting company 82 39 -39
  • * 1 Regarding performance-based share incentives, as the most recent fiscal year was the final year of implementation of the Kao Group Mid-term Plan K20, performance-based share incentives were confirmed after the conclusion of the final year of implementation of K20, with the inclusion of the performance-based part for the final year. The amount obtained by deducting an amount equivalent to the fixed part of the performance-based share incentives paid up until the most recent fiscal year from the cumulative total disclosed for the period up until the previous fiscal year exceeded the confirmed amount, with the amount of reversal for prior period provisions based on the level of achievement of K20 performance objectives being 74 million yen. As the amount of provisions booked for the most recent fiscal year was 35 million yen, the disparity was shown as a decrease in the above table. For this reason, the aggregate amount of remuneration obtained by adding performance-based share incentives to base salary and bonuses was 82 million yen, and the aggregate amount of remuneration with performance-based share incentives deducted was 121 million yen.
  • * 2 Only Director remuneration amounts totaling over 100 million yen are listed.
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