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Remuneration for Directors and Audit & Supervisory Board Members (KANSAYAKU)

Basic Policy on the Remuneration for Directors/Audit&Supervisory Board Members(KANSAYAKU) (A&SBMs) and Methods on Determining the Level of Remuneration

For the purpose of continuously improving corporate value and strengthening its competitiveness, NEC's basic policy on the remuneration for Directors and A&SBMs is to set a level and structure appropriate for a global company which enables NEC to secure excellent human resources and serves as an incentive to improve performance of the NEC Group. In order to ensure objectiveness and properness of the remuneration for Directors and A&SBMs, the level of the remuneration is determined on the result of the third party's investigation regarding the remunerations of other companies whose business contents and scale are similar to those of NEC.

Remuneration Structure

  1. Remuneration for Directors
    Remuneration for Directors of NEC consists of basic remuneration, bonuses and stock compensation (a performance-based stock compensation (the "Performance-based Stock Compensation") and the stock compensation in which stock equivalent to a pre-determined monetary amount is granted (the "Fixed Stock Compensation")). The policy on the remuneration for Directors and remuneration plan for Directors based on such policy are determined by the resolution of the Board of Directors, based on the results of their deliberation from an objective viewpoint by the Nomination and Compensation Committee, the majority of the members of which are independent Outside Directors (one of whom is the chairperson).

    Basic remuneration
    Basic remuneration is fixed-monthly payments that do not exceed the limit established by resolutions of the General Meetings of Shareholders, and is determined separately for each job title and for Inside Directors and Outside Directors.
    However, for some Executive Directors basic remuneration increases or decreases depending on the performance of these individuals in each fiscal year. The Board of Directors determines for each job title the standard amount of basic remuneration and the range of fluctuations. Performance indicators include non-financial indicators such as practical implementation of NEC's "materiality"—priority management themes from an ESG perspective.

    Bonuses
    Bonuses serve as short-term incentives to achieve performance targets in each fiscal year for the sustained growth of the NEC Group. Executive Directors are eligible to receive these bonuses at a certain time every year. The limit for total payments of these bonuses is determined by a resolution of the General Meetings of Shareholders. Individual bonus payments are determined by adjusting the standard bonus amount determined for each job title of Directors to reflect the achievement level of performance targets.

    Stock compensation
    Stock compensation is granted to Inside Directors and consists of the Performance-based Stock Compensation and the Fixed Stock Compensation.
    (i) Performance-based Stock Compensation
    The Performance-based Stock Compensation serves as a mid- to long-term incentive to further raise Directors' awareness for contribution to improvement in NEC's mid- and long-term performance and its corporate value, by clarifying the link between remuneration of Directors and NEC's performance as well as value of the NEC shares. The Performance-based Stock Compensation is linked to a single fiscal year. Following the end of each applicable fiscal year, the number of points granted to a Director is determined according to job title and the level of achievement of performance targets in the fiscal year. In principle, Directors receive a number of shares (however, part of which shall be an amount of cash equivalent to the NEC shares as converted and disposed of) corresponding to the number of points after three years from the beginning of the applicable fiscal year.

    (ii) Fixed Stock Compensation
    The Fixed Stock Compensation further clarifies the link between remuneration for Directors and the value of NEC shares by increasing the ratio of stock compensation in the remuneration for Directors, and encourage Directors to operate the business with a higher consciousness of NEC's share price by sharing with shareholders not only the benefits of rising share prices but also the risks associated with falling share prices. The Fixed Stock Compensation applies to the period beginning on the day of each Ordinary General Meeting of Shareholders and ending on the day of the Ordinary General Meeting of Shareholders in the following year. Following the end of this period, Directors receive points corresponding to monetary amounts that do not exceed the limit established by resolutions of the General Meetings of Shareholders. In principle, Directors receive a number of shares (however, part of which shall be an amount of cash equivalent to the NEC shares as converted and disposed of) corresponding to the number of points after three years from the beginning of the applicable period.

    (iii) Certain Restrictions of Stock Compensation Plan
    Under the stock compensation plan, there are certain restriction provisions. These enable NEC to take action in cases where compliance breaches or inappropriate accounting treatment (including the submission of amended reports and amendment of past financial statements) have been confirmed. In such cases, after deliberation by the Compensation Committee and a resolution by the Board of Directors, NEC may withhold all or part of the rights to receive a grant of NEC's shares prior to the grant of NEC's shares; or after the grant of NEC's shares, NEC may demand the return of all or part of the granted shares of NEC (including an amount of cash equivalent to NEC's shares as liquidated and disposed of paid instead of NEC's shares).

  2. Remuneration for A&SBMs
    Remunerations for A&SBMs are only basic remunerations and do not include bonuses linked to the business results because the responsibility of A&SBMs is to audit execution of Director's duty.

    Basic remuneration
    Basic remunerations are determined through the consultation by A&SBMs and depending on whether he or she is a full-time A&SBM or not, to the extent of the maximum amount approved at the General Meeting of Shareholders.
Remuneration for NEC's Directors and A&SBMs for fiscal year ended March 31, 2022 is as follows:
  Basic Remuneration Bonus Performance-based stock compensation Fixed Stock Compensation
Head count Total Amount
(In millions of yen)
Head count Total Amount
(In millions of yen)
Head count Cost posting relating to the Stock Compensation(In millions of yen) Head count Cost posting relating to the Stock Compensation(In millions of yen)
Directors
(of which Outside Directors)
12
(6)
456
(91)
5
(-)
131
(-)
6
(-)
100
(-)
6
(-)
34
(-)
A&SBMs
(of which Outside A&SBMs)
6
(3)
107
(47)
-
(-)
-
(-)
-
(-)
-
(-)
-
(-)
-
(-)
  • Notes:
    1. The above headcount of remuneration includes one Audit & Supervisory Board Member (KANSAYAKU) who retired at the close of the 183rd Ordinary General Meeting of Shareholders held on June 22, 2021.
    2. The above cost posting relating to Performance-Based Stock Compensation and Fixed Stock Compensation are the value posted during the year ended March 31, 2022.
    3. Bonus and performance-based stock compensation are defined as performance-based remuneration. Performance based stock compensation and Fixed Stock Compensation are defined as non-monetary compensation.
    4. The maximum annual remuneration for Directors is 1,380,000,000 yen (of which 580,000,000 yen for basic remuneration and 800,000,000 yen for bonus) (approved at the 181st Ordinary General Meeting of Shareholders held on June, 24 2019).
    5. The maximum annual remuneration for Audit & Supervisory Board Members (KANSAYAKU) is 144,000,000 yen (approved at the 181st Ordinary General Meeting of Shareholders held on June 24, 2019).