Remuneration for Directors and Audit & Supervisory Board Members

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Basic Policy

The Company's remuneration plan for directors and Audit & Supervisory Board members is designed to achieve sustainable growth and enhanced corporate value over the medium to long term for the group based on the corporate philosophy, while also ensuring that functions such as business execution and management supervision are exercised appropriately, maintaining transparency and fairness. The Company's basic approach to remuneration for directors and Audit & Supervisory Board members is as follows.

Remuneration Levels

Considering the need to acquire and motivate outstanding personnel who will take responsibility for the Company's global business activities, the Company sets remuneration levels fully commensurate with the roles and responsibilities expected of such personnel, while also considering levels at companies that the Company considers benchmarks based on the scale, industry and business model.

Remuneration System

With regard to remuneration for directors responsible for business execution, the Company has formulated a remuneration system that is closely linked to performance in individual fiscal years, as well as over the medium to long term, while emphasizing sustainable enhancement of corporate value. Remuneration consists of fixed remuneration as basic remuneration, performance-linked bonuses, and share-based payments emphasizing the link to shareholder value. Remuneration for outside directors and Audit & Supervisory Board members comprises only fixed remuneration as basic remuneration in light of their duties.

Method of Determining the Content of Remuneration of Individual Directors

The Board of Directors receives recommendations on the appropriateness of the remuneration system and remuneration levels, and the performance evaluation for performance-linked bonuses and share-based payments from the Corporate Governance Committee, which consists of the president, the director in charge of administration, and all outside directors. Based on these recommendations, the Board determines the individual remuneration for directors as follows.

  • The president is delegated with deciding the specific payment amounts of individual fixed remuneration as basic remuneration to directors and individual performance-linked bonuses for each director (excluding outside directors) pursuant to resolution of the Board of Directors. In accordance with this delegation, the president makes the final decision on remuneration amounts based on deliberation and reports by the Corporate Governance Committee regarding remuneration levels.
  • Individual share-based payments for each director (excluding outside directors) are determined by resolution of the Board of Directors based on reports on performance evaluation, etc. by the Corporate Governance Committee.

Content of Remuneration to Directors (Excluding Outside Directors)

Remuneration type Payment method
Fixed/Variable
Remuneration content
(including policy for determining timing or conditions of remuneration)
Fixed remuneration Cash
Fixed
  • Fixed remuneration for directors of the holding company is determined based on their duties and responsibilities including formulation of group strategies, monitoring group operations, and strengthening corporate governance.
  • Remuneration for directors who serve concurrently as directors of subsidiaries that are operating companies is determined based on their duties and responsibilities including execution of business based on group strategies formulated by Otsuka Holdings, formulation of strategies for the operating company, and strengthening corporate governance. (Remuneration shall not exceed the upper limit of remuneration resolved at the Shareholders' Meeting.)
  • Fixed remuneration is paid out equally every month.
Performance-linked bonus Cash
Variable
  • Remuneration is paid in a lump sum at a certain timing every fiscal year, with the amount or calculation method determined based on (1) rate of achievement of the fiscal year's targets for consolidated revenue, consolidated operating profit, and consolidated business profit before R&D expenses; (2) progress with respect to medium-to-long-term consolidated performance targets; and (3) appropriate business management in compliance with corporate governance, along with the individual's personal performance.
Share-based payment Non-cash
(restricted stock)
Variable
  • The Company has introduced a share-based payment plan that reflects progress in achieving the targets in the Third Medium-Term Management Plan covering the period from fiscal 2019 to fiscal 2023.
  • Under the plan, restricted stock allocation agreements stipulating conditions including transfer restrictions for a set period are concluded with the grantees. The plan is designed to function as an effective remuneration system by combining multiple release conditions for the transfer restrictions, including a set performance evaluation period and performance achievement, and by, in principle, granting restricted stock requiring evaluation of performance over several fiscal years at the same time in the first fiscal year.
  • The specific timing for granting restricted stock is each fiscal year for items requiring evaluation of performance in a single fiscal year, and at the same time in the first fiscal year of the evaluation period for items requiring evaluation of performance over several fiscal years.

Overview of Non-Cash Remuneration (Restricted Stock)

To determine the number of shares to be allocated to grantees of restricted stock, a standard number of shares is set for each fiscal year for each individual, giving consideration to his or her performance of duties, responsibilities, and the weighting versus fixed remuneration as basic remuneration. Based on this standard number of shares, shares are allotted for each series each fiscal year or at the same time in the first fiscal year of an evaluation period of several fiscal years, according to the following release conditions.
The restricted stock allocation agreements concluded with the grantees stipulate that the transfer restrictions on the restricted stock shall not be removed and the Company shall acquire all of the shares without paying compensation if certain events occur. For example,

  • If a director of the Company retires before the end of the transfer restriction period, the Company shall acquire without paying compensation all of the director's restricted stock upon retirement, except in cases where the Company recognizes a valid reason, such as completion of the term of office or death;
  • If a director retires before the end of the transfer restriction period due to a valid reason, such as completion of the term of office or death, the number of shares whose transfer restriction is to be removed and the timing of the removal shall be rationally adjusted as necessary and the Company shall acquire without paying compensation all of the restricted stock for which it is decided that the transfer restriction is not to be removed; and
  • If the release conditions based on performance have not been met, the Company shall acquire without paying compensation all of the restricted stock for which it is decided that the transfer restriction is not to be removed.
  Allocation ratio Fiscal year for evaluation
and allocation timing
Summary of release conditions
Series A
(Incumbency condition)
40% of the standard number of shares Allocated each year, taking a single fiscal year as the evaluation period On condition of incumbency in the subject fiscal year (single fiscal year) (However, the shares will not be released if the combined consolidated revenue and operating profit target achievement rate is less than 80%)
Series B
(Achievement of medium-term performance targets)
30% of the standard number of shares Evaluation period 1 is the three fiscal years from fiscal 2019 through fiscal 2021, with the shares for the three years allocated at the same time at the start of the period
Evaluation period 2 is the two fiscal years from fiscal 2022 through fiscal 2023, with the shares for the two years allocated at the same time at the start of the period
In each evaluation period, the value of (2) below may not fall below the value of (1)
(1)The cumulative amount of the planned value of “consolidated business profit before R&D expenses” of the Third Medium-Term Management Plan
(2)The cumulative amount of the actual value of “consolidated business profit before R&D expenses” for the evaluation period
Series C
(Satisfaction of the medium-term cost of capital condition)
30% of the standard number of shares Evaluation period 1 is the three fiscal years from fiscal 2019 through fiscal 2021, with the shares for the three years allocated at the same time at the start of the period
Evaluation period 2 is the two fiscal years from fiscal 2022 through fiscal 2023, with the shares for the two years allocated at the same time at the start of the period
In each evaluation period, the value of (2) below may not fall below the value of (1)
(1)The cumulative amount of the “consolidated cost of capital” calculated in accordance with the consolidated capital cost ratio for the evaluation period
(2)The cumulative amount of the actual value of “consolidated net operating profit after tax” for the evaluation period

Reason for Selection of the Indicators

As performance indicators for performance-linked bonuses, by looking at consolidated revenue, consolidated operating profit and consolidated business profit before R&D expenses together it is possible for the results of business operations for a single fiscal year to be evaluated from multiple perspectives.
As performance indicators for share-based payments, the selection of incumbent director's contribution to achievement of single-fiscal year performance targets, consolidated business profit before R&D expenses from a medium-term perspective, and consolidated cost of capital as evaluation items makes it possible to comprehensively evaluate the director's level of contribution to enhanced corporate value.

Composition of Remuneration to Directors (Excluding Outside Directors)

The remuneration plan emphasizes medium-to-long-term enhancement of corporate value, and is designed so that performance-linked remuneration as a percentage of total remuneration varies according to the Company's single-year and medium-to-long-term consolidated performance.
As a rough guide to the ratio of remuneration by remuneration type, performance-linked bonuses are designed to be variable over the range of 0%–100% of fixed remuneration, and share-based payments over the range of 0%–100% of fixed remuneration. Performance-linked bonuses and share-based payments combined are roughly a maximum of 66% of total remuneration (200% of 300% total).

Content of Remuneration to Outside Directors

The Company pays only fixed remuneration to outside directors; no component of the remuneration varies according to performance.

Content of Remuneration to Audit & Supervisory Board Members

The Company pays only fixed remuneration to Audit & Supervisory Board members; no component of the remuneration varies according to performance.

Total Remuneration to Directors and Audit & Supervisory Board Members

Classification Total amount of
remuneration
(Millions of yen)
Total amount by type of remuneration
(Millions of yen)
Number of eligible officers
Fixed remuneration Share-based payment Bonus
Directors
(of which Outside Directors)
895
(27)
329
(27)
421
(–)
144
(–)
14
(4)
Audit & Supervisory Board members (of which Outside Audit & Supervisory Board Members) 56
(32)
56
(32)
- - 4
(3)
Total (of which Outside Directors and Audit & Supervisory Board Members) 951
(59)
385
(59)
421
(–)
144
(–)
18
(7)
  1. There are no Directors of the Company who concurrently serve as employees.
  2. During the current fiscal year, Outside Directors and Audit & Supervisory Board Members received total remuneration of ¥2 million from the Company's subsidiaries for their services as Directors and Audit & Supervisory Board Members.
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