Japan finding out who gets big pay under new rule
Japan is finally finding out who is getting the big paychecks, thanks to a new rule requiring disclosure of pay for executives receiving 100 million yen ($1 million) or more.
But the list of millionaire bosses is surprisingly short and many of them it turns out are foreigners — like Nissan Motor Co. Chief Executive Carlos Ghosn, who raised the ire of a few shareholders when he announced Wednesday his whopping compensation of $9.5 million for the fiscal year ended March.
The disclosures mark a dramatic shift for Japan's corporate culture, which has previously not fostered professional management based on risk-taking by a decisive executive with the hefty paycheck to back it, analysts say.
Instead, companies have made decisions by building consensus among a group of managers — all getting a fraction of the pay of their Western counterparts.
The Brazilian-born Ghosn, who also has French citizenship, told shareholders that Nissan is a global company with a diverse group of executives. Some 44 percent of its board directors are non-Japanese.
He also pointed out his pay as chief executive was lower than what other chiefs were getting at comparable companies on average, which he said was $12.6 million.
Still, he was heckled by a couple of shareholders, who shouted, "Get out, Ghosn," and another who stood up to question the pay, demanding that he share it with his workers.
They were a clear minority, and company's pay proposals won shareholders' approval without any trouble.
Unlike the U.S. and parts of Europe, Japan has not required companies to disclose executive pay until this year. And the move toward greater transparency in corporate governance has barely begun.
Some companies had reported executive pay voluntarily, but they were rare. More common was the practice of reporting just the combined amount of money that board members received, leaving much to mathematical guesswork.
Studies by consultant PricewaterhouseCoopers Co. estimate that top Japanese executives earn on average 50 million yen ($500,000), or a quarter of what their American counterparts earn at about 200 million yen ($2 million).
Only about 1.4 percent of the board of directors in Japan receive 100 million yen or more, which likely translates to about 100 people whose earnings will be disclosed under the new rule, according to PricewaterhouseCoopers.
Last week, Japanese electronics and entertainment company Sony Corp. made headlines when it disclosed at a shareholders' meeting that Chief Executive Howard Stringer got 800 million yen ($8.8 million) in annual pay, although the electronics maker has racked up red ink for two straight years.
Nearly half of Welsh-born Stringer's pay came from stock options.
At a luncheon following the Nissan shareholder meeting, some said they were shocked by the amount Ghosn was making. But they also said he deserved it. Baseball players made as much, one said.
"It's reasonable by global standards," said Hiroaki Kawaguchi, an auditor, who owns 1,000 Nissan shares.
The 10 highest-paid CEOs for 2009 at Standard & Poor's 500 companies earned between $24.4 million and $47.2 million, based on calculations by The Associated Press.
Officials at Nissan, Japan's No. 3 automaker that is allied with Renault SA of France, say Ghosn has been offered other high-paying jobs, and it takes money to keep him at his job.
Masato Shirai, a director at PricewaterhouseCoopers, expects a gradual trend toward Japanese executives getting better pay.
"You cannot expect to attract international investment if you don't have global standards in transparency," he said. "Investors want to know what management is doing, and for what kind of money."
Up to now, Japan has been not only underpaying executives but has also been secretive, hiding under a myth that everyone is equal, and no one should stand out, Shirai said.
Japanese companies have been so insular that standards of corporate transparency lag far behind the West and some Asian nations.
Sometimes a Japanese company will buy out a foreign company and find out executives at its new subsidiary are getting more pay than their own president.
All that has to change, but Japanese management will also have to own up to failures, says Yuzo Fujishima, a corporate governance expert at Tokyo think-tank Daiwa Institute of Research.
"Otherwise, Japanese companies aren't going to be able to compete against global companies," he said. "A board made up of salarymen simply can't deliver on the speed needed for decisions on mergers and acquisitions and other risk-taking."
The new rule is designed to encourage a new generation of executives to proudly accept big pay, Fujishima says.
"Right now, personnel decisions are being made rather irresponsibly. It's almost as though anyone can be president," he said.
Even Ghosn acknowledged Japanese executives should be getting more.
"We are a Japanese company but we have global management," he said. "There is a problem today about this discrepancy."