Compensation for Corporate Executives

Compensation paid to directors and corporate officers is determined by the Compensation Committee. All 3 members of the Company’s Compensation Committee, including the chair, are outside directors, and the Compensation Committee places emphasis on an objective perspective and transparency. The Compensation Committee has the authority to determine the content of compensation of individual directors and corporate officers of the Company. It determines (1) policy concerning decisions on the content of compensation of individual directors and corporate officers, (2) the content of compensation of individual directors and corporate officers, and (3) the evaluation of the degree of attainment of Company-wide performance targets and the individual performance targets of each corporate officer for the performance-based compensation of corporate officers.

The Compensation Committee examines various issues concerning the compensation paid to directors and corporate officers, confirms the level of compensation each year, and determines the compensation system for the following year. At the Compensation Committee meeting held in March 2023, the Committee resolved a compensation system for directors and corporate officers to be effective from FY2023.The basic policy and overview concerning the new compensation system paid to directors and corporate officers shall be as follows.

In addition, in regard to consideration of issues related to compensation, etc., and the level of compensation, etc., the Committee proactively incorporates and utilizes data, etc., from outside specialized organizations.

Compensation System for Directors

• 1）
  Basic policy concerning compensation, etc., paid to directors
  The basic policy concerning compensation, etc., paid to directors shall be as follows.
  

  Set the compensation, etc., of directors so that the contents are suitable to motivate them to fully carry out their management oversight function, which is their duty, in order to improve the common interests of stakeholders and increase long-term corporate value. Pay compensation, etc., to directors with a portion of it consisting of stock, from the perspective of sharing profit-consciousness that is the same as shareholders.
• 2）
  Overview of the compensation system for directors
  

  • (1)
    Although it is only a fixed amount base compensation, pay compensation, etc., to directors in the form of cash for 90% of the base compensation and 10% as stock (granted at the time of resignation).

  

The Compensation Committee deliberated on and determined the performance evaluations of corporate officers and the amount and number of shares granted to each person as performance-based compensation (bonuses and stock-based compensation) for FY2022. The bonuses of corporate officers were calculated in accordance with the degree of attainment of Company-wide performance targets (financial)*¹ and the degree of attainment of the performance targets of each corporate officer, and stock-based compensation was determined in accordance with the degree of attainment of Company-wide performance targets (non-financial)*².

• ＊1
  Calculated in accordance with the degree of attainment of the targets for consolidated revenue, consolidated operating profit, consolidated profit for the year (attributable to the parent company), and consolidated ROE.
• ＊2
  Calculated in accordance with the degree of attainment of targets for relative PBR, R&D metrics, access to medicines, and employee engagement.

The degree of attainment of Company-wide performance targets (financial) used in calculation of bonuses was determined in accordance with an evaluation of consolidated revenue, consolidated operating profit, consolidated profit for the year (attributable to the parent company), and consolidated ROE. For FY2022, the Compensation Committee evaluated the degree of attainment of Company-wide performance targets in a range of 0% to 300%, based on the degree of attainment of each item. The Company decided to adopt these 4 evaluation indicators because first of all, they represent management indicators to share with shareholders as published numerical targets for achieving the business plan for the corresponding fiscal year, and because the Company considers consolidated ROE an important indicator of the sustained creation of value for shareholders.

The targets and performance of the Company-wide performance targets (non-financial) are listed in the table below. The degree of attainment was evaluated as 135% at the Compensation Committee meeting held on May 22, 2023, based on the criteria decided when the targets were set.

As for the degree of attainment of individual performance targets, the Compensation Committee examines the individual evaluations proposed by the Representative Corporate Officer and CEO, in accordance with the degree of attainment of the individual performance targets of each corporate officer, and evaluates the degree of attainment in a range of 0% to 150%. Further, each corporate officer sets concrete performance targets and weighted points are assigned to the targets in accordance with their priority, and after deliberation with the Representative Corporate Officer and CEO, the individual performance targets are proposed to the Compensation Committee. The targets are determined by the Compensation Committee after evaluation of their suitability. The average attainment of the individual performance targets of all corporate officers for FY2022 was evaluated as 93% based on the results of individual deliberation for each corporate officer at the Compensation Committee meeting held on May 15, 2023. Bonuses consist of bonuses that are determined based on the degree of attainment of Company-wide performance objectives and bonuses that are calculated based on the degree of attainment of individual performance targets. The ratio of the base amount for calculation of the 2 types of bonus shall be 5:5.

The bonuses of corporate officers for FY2022 were decided with the bonuses determined based on the degree of attainment of Company-wide performance objectives (financial) and the bonuses determined based on the degree of attainment of individual performance targets at the Compensation Committee meeting held on May 15, 2023.

The degree of attainment of the Company-wide performance targets (non-financial) used for the calculation of stock-based compensation was determined in accordance with the evaluation of relative PBR, R&D metrics, access to medicines, and employee engagement. For FY2022, the Compensation Committee evaluated the attainment of Company-wide performance targets (non-financial) in a range of 0% to 150%, in accordance with the degree of attainment of each item. The reason that Company-wide performance targets (non-financial) were adopted for calculation of stock-based compensation is that relative PBR is an indicator of the improvement of the interests of shareholders, R&D metrics and access to medicines are directly connected to the social good of the Company. As for employee engagement, each employee is a major stakeholder as stipulated in the Articles of Incorporation and enhancement of human capital leads to the creation of corporate value., accordingly, it is viewed as an important indicator related to medium- to long-term improvement of corporate value.

Indicators and methods for evaluating the degree of attainment of the Company-wide performance targets (non-financial) are listed below. The degree of attainment was evaluated as 88% at the Compensation Committee meeting held on May 15, 2023, based on the criteria decided when the targets were set.

Figures for FY2022 stock-based compensation paid to each corporate officers were determined based on the degree of attainment of Company-wide performance targets (non-financial) listed in the table above at the Compensation Committee meeting held on May 22, 2023

The grand total of compensation paid to directors and corporate officers in FY2022 (from April 1, 2022, to March 31, 2023) was as indicated below.