Research Handbooks in Corporate Law and Governance series
Edited by Randall S. Thomas and Jennifer G. Hill
Chapter 18: Presidents’ Compensation in Japan
Katsuyuki Kubo1 1 INTRODUCTION The purpose of this chapter is to examine recent changes in executive compensation in Japan. We will focus mainly on three topics. First, we review recent changes in the institutional framework for executive pay. In particular, we discuss the new rules on disclosure of executive compensation, which require firms to disclose the salaries of their presidents if their pay exceeds a certain amount after 2010. However, this new rule is not applicable to most presidents as the threshold, US$1 million, is higher than the salary of most executives. Second, we describe changes in the level of presidents’ salaries, using a sample of 179 firms taken from the Nikkei 225 Stock Index between 2000 and 2007. As individual compensation of presidents is not disclosed, we adopt the Kubo and Saito (2008) calculations and show rapid increases in presidents’ salaries after 2000. Third, we examine change in pay–performance sensitivity (PPS), which shows the relationship between presidents’ wealth and firm performance, and attempt to examine whether presidents have a financial incentive to maximize shareholder value. It is shown that pay–performance sensitivity has been increasing during this period. However, this pay–performance sensitivity is much weaker than in the U.S. In other words, presidents in Japan have much less financial incentive to maximize shareholder value compared to their American counterparts. There are several reasons why it is important to examine executive compensation in Japan. First, it might explain differences in firm behavior between Japan and other countries....
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