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Kubo, Katsuyuki --- "Presidents’ Compensation in Japan" [2012] ELECD 616; in Thomas, S. Randall; Hill, G. Jennifer (eds), "Research Handbook on Executive Pay" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on Executive Pay

Editor(s): Thomas, S. Randall; Hill, G. Jennifer

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849803960

Section: Chapter 18

Section Title: Presidents’ Compensation in Japan

Author(s): Kubo, Katsuyuki

Number of pages: 18

Extract:

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 insti-
tutional framework for executive pay. In particular, we discuss the new rules on disclo-
sure 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 com-
pensation 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 pay­performance 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 pay­performance sensitivity has been increasing during this period. However, this
pay­performance 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 ...