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Tuesday, Aug. 3, 2010

EDITORIAL

Executive remuneration

From this year the Financial Services Agency has made it mandatory for listed companies to disclose in their financial statements the names of executives who receive annual remuneration of ¥100 million or more and the actual amount of remuneration each executive receives. According to Kyodo News, some 290 executives received ¥100 million or more in remuneration in the business year ended March 2010. These executives were with 170 companies, or 6 percent of the companies that announced their results for the business year.

Some business leaders oppose the new disclosure system, saying that it is meaningless or it will only serve to satisfy the curiosity of people. But attention should be paid to the roles the disclosure can play. Whether the amount of executives' remuneration is appropriate in relation to the company's performance will be an important point when people determine whether to invest in it. If a company that is in the red for several years offers generous remuneration, people may have second thoughts about investing in it. But they will not oppose large sums to executives who greatly contribute to their company's long-term prosperity.

It also must be remembered that companies are public entities that not only are responsible for their employees and shareholders but also play vital economic and social roles in the areas where its offices and factories are situated.

Under the new rule, companies that have clear rules to determine the amount of executives' remuneration must disclose them. For example, Mitsui & Co. limits the total compensation for executives to 0.1 percent of net profit, or ¥500 million. But many companies have no explicit rules. In other words, there exists an opaqueness as to the process to determine the amount of remuneration.

It is hoped that companies will disclose the grounds or basis for determining remuneration in a clear-cut way. If they are serious about increasing employment, contributing to enhancing local economies and protecting the environment, people may not oppose large remuneration for executives.



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