Japanese companies protest CEO pay disclosure

By Kazuki Nishihara and Naoki Ogawa

The Yomiuri Shimbun

(MCT)

TOKYO - A new rule from Japan's Financial Services Agency requiring executives to disclose salaries of more than 100 million yen a year has provoked a backlash from listed companies.

In annual securities reports announced after shareholder meetings in June, domestically listed companies must disclose the names of executives who received more than 100 million yen in a year in fiscal 2009 as well as their salary.

But because the rule was decided on after only a short period, many listed companies have voiced strong criticism that the issue was not adequately discussed. Compared with European and U.S. companies, executive salaries are said to be low in Japan, and some companies claim that disclosing individual names is going too far.

In Europe and the United States, there has been a tendency to strictly monitor corporate compensation after the accounting scandal at U.S. energy firm Enron Corp. in 2001 and the financial crisis of 2008. So far, 15 countries have initiated disclosure rules in an attempt to prevent management from receiving remuneration unrelated to the performance of the firm.

In the wake of these global trends, the FSA announced in February its plan to introduce a similar rule on the disclosure of executive salaries more than 100 million yen. The present disclosure rule, introduced in 2004, requires companies to disclose the total pay all executives at a company receive, but not individual amounts.

The business sector has expressed opposition to the new rule.

"(The rule) has a lot of problems from the standpoint of protecting personal information," said Keizai Doyukai, an official of the Japanese Association of Corporate Executives.

Atsushi Saito, president of the Tokyo Stock Exchange, said, "Just showing the amounts will invite criticism from the public and a sense of (income) disparity."

However, Shizuka Kamei, who quit Friday as state minister in charge of financial services and postal reform, shrugged off such criticism, saying, "Companies owe their existence to society. People who are paid a lot should be proud of themselves and the job they do."

The new disclosure rule went into effect March 31 - six weeks after being announced.

Some companies said they did not understand why the agency set the threshold for disclosure at 100 million yen. According to the agency, many chief executive officers at listed companies in the United States make around 100 million yen. However, countries in Europe and the United States do not demand companies disclose compensation based on amount, which is required in the Japanese rule.

Business consulting firms are receiving many inquiries from companies about the disclosure rule.

But the actual number of executives whose pay will be disclosed is not expected to be very large. According to the agency, average salary of listed company executives is about 25 million yen.

"The number of firms with executives whose pay will be subject to disclosure is 100 or less (among 3,800 listed companies)," said an official at a major trust bank.

"(The disclosure system) is supposed to restrict overly high salaries, but it's not necessary to release that much information in Japan since the pay levels are lower than Europe and the United States. The amounts and names will just become an object of curiosity," said Prof. Hiroyuki Itami of Tokyo University of Science.

Meanwhile, a person involved in the stock market said the disclosure would increase protections for shareholders, as it enables them to track compensation against performance.

Cosmetics giant Shiseido Co. has announced that its president, Shinzo Maeda, received 121 million yen and CEO Carsten Fischer received 141 million yen in fiscal 2009. The figures were released before a shareholders' meeting on June 25.

But many other firms have not yet decided how to deal with the issue at upcoming shareholders meetings. A major trading company said it would not disclose the information at shareholder meetings, although salaries of its top executives were between 150 million yen and 200 million yen.

"But if the shareholders ask, we'll have to say something," an official at a major bank said.

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