Compensation for Management
Remuneration for Directors and Audit & Supervisory Board Members
Basic policy on the remuneration system:
- The interests of shareholders and management should be aligned by enhancing the link between the Company’s business performance and the share value.
- The remuneration system should function as an incentive for improving the Company’s medium- to long-term performance.
- The determination process of the remuneration system should be highly objective and transparent.
Structure of Compensation System
- 1.The compensation system for directors consists of “monthly compensation,” comprising basic compensation, which is fixed compensation, and performance-linked compensation that reflects short-term business performance, as well as a “Board Benefit Trust (BBT),” a stock compensation plan that reflects the degree of achievement of the medium-term management plan and the share value.
- 2.The “basic compensation” is fixed compensation in accordance with the position of directors and granted as monthly compensation.
- 3.The “performance-linked compensation (monthly compensation)” is determined based on the formula below according to the degree of achievement of business performance for the fiscal year.
[Short-term performance-linked compensation]
・Short-term performance-linked compensation = Base payment amount by position x Performance evaluation factor
For directors in charge of internal companies, the short-term performance-linked compensation is modified based on the rate of growth of net sales of the relevant company, the degree of improvement in the amount of operating income, the degree of improvement in ROIC, a research and development indicator, and an environmental indicator (including the degree of reduction of CO2 emissions).*Performance evaluation factor: Determined based on the matrix table with ROIC in the previous fiscal year for which a threshold value is set and net income (attributable to owners of the parent) as indicators (factor: 0.00 - 4.00)
- 4.The amount of stock compensation is determined based on the formula below according to the degree of achievement of the medium-term management plan by using the scheme of the board benefit trust (BBT).
[Stock compensation granted during the time in office]
・Stock compensation granted during the time in office = Share issuance points by position x Performance evaluation factor x Medium-term management plan achievement factor
- *Performance evaluation factor: Determined based on the matrix table with ROIC in the previous fiscal year for which a threshold value is set and net income (attributable to owners of the parent) as indicators (factor: 0.00 - 4.00)
- *Medium-term management plan achievement factor: Set according to the degree of achievement of net sales and operating income in the medium-term management plan (0 - 0.5)
[Stock compensation granted at the time of retirement]
・Stock compensation granted at the time of retirement = Share issuance points by position
・The issuance points are vested at the end of each one-year term and are granted on the date when the director retired from office.
- 5.Compensation for directors has the composition ratio that places emphasis on the link between the business performance and the shareholder value.
This table shows medians for each position, and it is a model in the event that the degree of achievement of targets for the performance-linked compensation is 100%.
| Position | Fixed compensation | Performance-linked compensation | ||
|---|---|---|---|---|
| Basic compensation | Short-term performance-linked compensation | Stock compensation granted during the time in office | Stock compensation granted at the time of retirement | |
| Chairman of the Board / President | 25% | 35% | 25% | 15% |
| Directors | 25% | 35% | 25% | 15% |
- 6.Compensation for outside directors and Audit & Supervisory Board members consists only of fixed compensation, excluding the portion that reflects the business performance, given that they are in a position independent from the execution of business.
Approach to Indicators for Performance-linked Compensation
Indicators for the performance-linked compensation for directors (excluding outside directors) are based on ROIC and net income (attributable to owners of the parent), which are principal indicators that show the results of activities of all the employees and lead to an improvement in ROE. Based on these indicators, all directors will promote management in consideration of the cost of capital, the dividend payout ratio and the sustainable growth of the Nabtesco Group. In addition, by setting a research and development indicator for promoting the creation of intellectual property and an environmental indicator according to the degree of reduction of CO2 emissions, in addition to management indicators such as the degree of improvement in ROIC, for directors in charge of businesses, a function as an incentive for the better business performance in the medium to long term is added.
For the degree of achievement of the medium-term management plan, “net sales” and “operating income” are used for the purpose of promoting activities with a unified direction, because these indicators are the outcome of business activities of all the directors and employees.
The above indicators may be modified if an event not attributable to the management decisions of the company has an impact.
Actual results of major indicators for performance-linked compensation (for FY2023)
| ROIC | Net sales | Operating income | Net income |
|---|---|---|---|
| 4.6% | 308,691 million yen | 18,097 million yen | 9,464 million yen |
*Performance-linked compensation for the fiscal year under review is calculated based on the figures in the financial results as of December 31, 2022.
Method to Determine Compensation
The policy for compensation for directors, the compensation system and level, and the amount of payment to each director are determined by the Board of Directors following deliberations at the Remuneration Committee, which consists of One internal director and four independent members including outside directors/Audit & Supervisory Board members, and the reports of the Committee.
Compensation for Audit & Supervisory Board members is determined through discussions among the Audit & Supervisory Board members.
Deliberations on compensation for directors for the current term and activities of the Remuneration Committee, etc. for determining the compensation are as follows.
Number of meetings of the Remuneration Committee, etc. (from January to December 2023)
| Committee, etc. | Number of meetings |
|---|---|
| Remuneration Committee | 2 |
| Board of Directors | 2 |
Total Amount of Compensation Paid to Directors and Audit & Supervisory Board Members (for FY2023)
(Unit: Million yen)
| Total Amount of Compensation | Types of Compensation | Number of Directors and Audit & Supervisory Board Members | ||||
|---|---|---|---|---|---|---|
| Fixed Compensation | Performance-linked Compensation | |||||
| Monthly Compensation | Board Benefit Trust (BBT) | |||||
| Compensation granted during the time in office | Grant at the time of retirement | |||||
| Directors | 319 | 176 | 41 | 9 | 93 | 12 |
| (Of whom, Outside Directors) | （49） | （49） | - | - | - | （6） |
| Audit & Supervisory Board Members | 78 | 78 | - | - | - | 6 |
| (Of whom, Outside Audit & Supervisory Board Members) | （24） | （24） | - | - | - | （3） |
| Total | 396 | 253 | 41 | 9 | 93 | 18 |
- *1The “Number of Directors and Audit & Supervisory Board Members” for Directors includes two Directors (including one Outside Director) and one Audit Supervisory Board Member who retired during the fiscal year under review.
- *2Monthly Compensation consists of basic compensation and short-term performance-linked compensation, paid out in total on a monthly basis.
- *3The amount of Board Benefit Trust (BBT) shows the amount recorded under expenses under JGAAP based on the number of points for issue of shares granted or to be granted during the current term.
- *4 The limit for compensation is 400 million yen for directors (50 million yen for outside directors) and 90 million yen for Audit & Supervisory Board members as resolved at the 14th Annual General Meeting of Shareholders (held on March 28, 2017).
- *5In addition to the compensation above, the board benefit trust (BBT) is introduced for directors (excluding outside directors) as resolved at the 14th Annual General Meeting of Shareholders (held on March 28, 2017), and we contributed 450 million yen (3 fiscal years) and 420 million yen (3 fiscal years) at maximum as compensation granted in office and compensation granted at retirement, respectively, to the trust based on the regulations of stock benefits for directors provided for by the BBT. At the 14th Annual General Meeting of Shareholders (held on March 28, 2017) separately from the limit for compensation in *4 above, in the BBT, 56,000 points (1 fiscal year) and 51,000 points (1 fiscal year) are set as the limit of share issuance for compensation granted during the time of office and compensation granted at the time of retirement, respectively.
Clawback Clause
As a result of having to revise the financial results of past fiscal years due to inappropriate accounting, etc., the Company has stipulated a clawback clause in the internal compensation regulations so as to demand the return of all or part of performance-linked compensation in the event of material revisions in the performance of past fiscal years which was the basis of the calculation of performance-linked compensation, or in the event that the Company incurs material loss due to an officer’s wrongful or illegal act.
*Directors (including the CEO but excluding outside directors)
