Compensation to Directors&Auditors/Cross-shareholdings

 In order to maximize the performance of duties in line with the management strategies and management goals, compensation for officers of the Company is based on job position and contribution to performance. With the aim of sharing profits and risks with shareholders, the compensation system provides incentives to manage the Company from the perspective of shareholders. With the start of the medium-term management plan (JT-2025 Management Plan), management responsibilities have been further clarified, and the compensation system was revised to aim for improved corporate value over the medium to long term.

 For outside directors who are independent from business execution, variable compensation such as performance-linked compensation is not necessarily appropriate. Therefore, outside directors are paid fixed compensation only.

The total amount of compensation for directors is set by resolution at the General Meeting of Shareholders, and monetary compensation is set within the range of 240 million yen per year, and stock compensation is set within the range of 50,000 points per year (1 point = 1 share). The Nomination and Compensation Committee, in which independent outside directors account for the majority of members with one of them serving as chairman, consults with the Board of Directors and deliberates on the allocation of compensation to individual directors based on the Regulation on Compensation for Directors, and the Board of Directors then makes the decision based on their report.

<Configuration and purpose of the compensation system for directors>

1. Clarify management responsibilities by setting the component ratio of performance-linked compensation to 50%.
2. Provide incentives for management aimed at improving corporate value from the perspective of the shareholders, with the component ratio of stock compensation set to 30%.
3. Promote sustainability management from a medium- to long-term perspective, with the component ratio of compensation based on ESG indicators set to 20%.

Compensation for directors is based on “Directors and Executive Officers” compensation, and the standard monthly compensation is set at no more than 300% of the maximum monthly salary as set forth in the employee salary system. For individual allocations, a compensation multiplier is set according to the position.

Monetary compensation paid as short-term incentive compensation (20%)

 

❶Individual performance-linked compensation (10%)

Each fiscal year, the Nomination and Compensation Committee evaluates the results from execution of duties by each director from the perspectives of monitoring and managing, and decides the individual performance-linked compensation by multiplication using the performance-based coefficient, which is based on a comprehensive evaluation. The amount paid will vary between 50% and 150%, with 100% indicating achievement of the targets.

 

❷ Financial indicator-linked monetary compensation (10%)

To encourage labor and management to work together to improve business performance, this type of compensation is based on the achievement of operating income, the same as year-end bonuses for employees. The amount paid will vary between 0% and 150%, with 100% indicating achievement of the targets. For details on positionspecific base compensation amounts and performance-based coefficient, please see the Securities Report.

Stock compensation paid as long-term incentive compensation (30%)

 

Directors are awarded points for each position once a year, calculated by multiplying the base points for each position by the performance-based coefficient based on the performance of the immediately preceding fiscal year (one ordinary share of the Company per one point), and each director receives ordinary shares of the Company (some are converted to cash) upon their retirement.

❶Financial indicator-linked stock compensation (10%)

To reflect in the compensation the degree of improvement in capital profitability, shares are issued as compensation based on the degree of achievement of ROE targets in the medium-term management plan.

❷ Stock compensation based on environmental management
indicator (10%)

The Company has introduced this incentive to encourage directors to address the environmental issues caused by climate change within the management strategies from the perspectives of risk and opportunity, as well as to link the creation of the positive impact of our operations on society with the Company’s sustainable growth. These incentives are awarded as shares for compensation based on an environmental management indicator (the CDP climate change score).

❸ Stock compensation based on employee engagement
indicator (10%)

The creation of an internal environment where diverse human resources can play an energetic, active role as well as investments in human resource development that improve employee engagement should improve customer satisfaction, or CS, (by creating new social value). In order to link this to the Company’s sustainable growth, the Company continually measures engagement to monitor the progress as an engagement score and reflects this in directors’ compensation.

 Currently, the Company strategically holds shares of listed companies from the perspective of enhancing the Company’s corporate value over the medium to long term, with the aim of strengthening business relationships and promoting smooth business operations. The Company is gradually reducing the number of shares held, and as a general rule, will not purchase any new shares.

 The Company conducts qualitative assessments of the shares currently held to maintain smooth and amicable business relationships with business partners and to establish smoothrunning supply chains. In addition, every quarter the Board of Directors conducts quantitative reviews of the percentage of total assets as well as profits and dividends derived from business relationships and then sells the shares, if necessary. In the fiscal year ended March 31, 2014, the Company held 39 stocks, but as of March 31, 2024, this number had been reduced to 25 (7.4% of consolidated net assets).

 The Company exercises its voting rights by comprehensively taking into consideration the governance system and business performance of the issuing company.