Sustainability

Directors and Audit & Supervisory Board Members

Remuneration of Directors and Audit & Supervisory Board Members

Policies for Determining Remuneration of Officers

Determining the Amount or Calculation Method of Remuneration, and Determining Details of Remuneration

The remuneration of directors (excluding outside directors) and corporate officers of NGK consists of the following three components: (1) basic remuneration as fixed annual remuneration according to respective positions; (2) a performance-linked bonus, which is based on the business performance each year; and (3) stock-related remuneration to enhance the motivation, etc. of directors to improve the medium- to long-term corporate value through appropriate corporate management by increasing sensitivity toward the NGK stock price and sharing with shareholders both advantages and risks generated by ups and downs of the stock price. NGK does not pay any performance-linked bonus or stock-related remuneration to outside directors and Audit & Supervisory Board Members and only pays basic remuneration since they assume roles in supervising and auditing management from an independent standpoint.
With regard to the remuneration of officers, NGK will endeavor to ensure fairness and enhance transparency by deliberating on basic policies and procedures for determination of remuneration, the overall remuneration range of directors/audit & supervisory board members, and the amount of remuneration for individual directors/audit & supervisory board members at the Nomination and Compensation Advisory Committee, comprised mainly of outside directors/audit & supervisory board members and reporting the results thereof to the Board of Directors. The Board of Directors will consider the findings of the committee and make a resolution for remuneration for directors and executive officers, and representative directors will take this decision and determine an annual salary that includes bonuses. The amount of remuneration, etc., of each audit & supervisory board member is determined through consultation between the audit & supervisory board members.

Committee for Determining the Amount or Calculation Method of Remuneration, and Method of Determination, for Officers

The Nomination and Compensation Advisory Committee is comprised of five outside directors and three representative directors. This committee deliberates on matters related to the appointment of directors and Audit & Supervisory Board members, remuneration of directors, executive officers, and Audit & Supervisory Board members, and Chief Executive Officer succession planning. To arrive at a resolution, a majority of committee members must be in favor of the decision. In fiscal 2019, the Committee met two times. At one of these meetings, resolutions included the policy for deciding officers’ compensation amount, compensation amounts and their breakdown for various levels of managers, and the calculation of amounts for performance-linked bonuses.

Persons with Authority to Decide Things Like Amount of Officers’ Remuneration

The Board of Directors accepts the report from the Nomination and Compensation Advisory Committee and, while sufficiently taking it into consideration, once again delegates the determination of officers’ remuneration to consultation between representative directors. Representative directors have the authority to determine basic remuneration, performance-linked bonuses, and stock-related remuneration in accordance with respective positions within the scope delegated to them by resolution of the Board of Directors, based on consultation between all representative directors, and the names of these representative directors are as follows:
Taku Oshima, Yukihisa Takeuchi, and Hiroshi Kanie

Summary of Performance-linked Remuneration

In NGK’s view, bonuses linked to short-term performance and stock compensation-type stock options, which are aimed at increasing the stock price by increasing directors’ motivation and morale to improve medium- to long-term corporate value, are variable components of remuneration linked to business performance. With regard to the ratio between this variable remuneration and fixed annual remuneration, the ratio of basic remuneration, performance-linked bonuses, and stock-related remuneration is set from a perspective of putting priority on the stability and enhancement of medium- to long-term performance, based on the fact that NGK’s businesses are in materials industries that provide many products contributing to industry and the social foundations of peoples’ lives, and the fact that, when creating new products and businesses, NGK prioritizes technology developed proprietarily, including materials technology and production technology, and it requires a relatively long time to develop this technology and bring new products to market, and for these products to contribute to earnings. The total amount of remuneration, including basic remuneration, is determined in accordance with officers’ positions, taking into consideration remuneration levels according to the size of companies and other factors, using data from reliable external research institutions.

Indicators for Performance-linked Remuneration, Reasons for Selecting Said Indicators

For performance-linked bonuses paid as annual bonuses, 1. comparisons of net sales, operating income, and net income attributable to owner of parent company (Net income amounts, hereinafter, the same applies) announced at the start of the period and during the period with amounts at the end of the period, and 2. comparisons of net sales, operating income, and net income in the previous fiscal year with those in the fiscal year under review are used as short-term indicators, while 1. the level of achievement in each fiscal year in terms of important issues spanning multiple fiscal years established by NGK, and 2. operating income and net income, on which ROE is based, are used as medium-term indicators (these indicators are all based on the consolidated business performance of the NGK Group; hereinafter, the same applies). NGK prioritizes comparisons with business performance figures announced at the start of the period and during the period, and comparisons with business performance figures in the previous fiscal year, based on the perspective that the achievement of business performance targets announced by NGK and the achievement of steady growth each fiscal year are important to shareholders and investors. Among measures of business performance, NGK uses net sales, operating income, net income, and ROE as indicators, as these figures are a clear measure of actual capabilities.

Method for Determining Amount of Performance-linked Remuneration

Calculation of performance-linked remuneration is determined by the following method.

  • A basic bonus amount to be used as the basis of the calculation is established for each position.
  • The basic bonus amount is distributed between each item in 1. comparisons of net sales, operating income, and net income amounts announced at the start of the period and during the period with amounts at the end of the period, and 2. comparisons of net sales, operating income, and net income in the previous fiscal year with those in the fiscal year under review, from a short-term perspective, and 1. the level of achievement in each fiscal year in terms of important issues spanning multiple fiscal years established by NGK, and 2. operating income and net income, on which ROE is based, from a medium-term perspective.
  • The result for each item is calculated, within a range from 0% to 200%, and the amount allocated to each item is calculated.
  • The allocated amounts are totaled and the amount of performance-linked bonus is calculated.
  • For directors who are not representative directors, the amounts of performance-linked bonuses are adjusted based on representative directors’ assessment of individual performance.
  • As a result the actual amount of performance-linked bonus paid fluctuates within a range of 0% to 200% of the basic amount.

Targets for the main indicators related to performance linked bonuses and the actual results are as follows:

Business performance amounts
announced at the beginning of the period
Net sales of ¥490.0 billion Operating income of ¥70.0 billion
Net income of ¥47.0 billion
Business performance amounts
announced during the period
Net sales of ¥450.0 billion
Operating income of ¥60.0 billion
Net income of ¥42.0 billion
Business performance amounts
in the previous fiscal year
Net sales of ¥463.5 billion
Operating income of ¥64.7 billion
Net income of ¥35.5 billion
ROE 7.6%
Business performance amounts
in the fiscal year under review
Net sales of ¥441.9 billion Operating income of ¥55.0 billion Net income of ¥27.1 billion ROE 5.8%

With regard to stock-related remuneration, NGK grants stock compensation-type stock options as a long-term incentive. The exercise price of the stock option is ¥1 per share, and NGK determines the number of stock options according to the respective managerial positions. As terms and conditions of the exercises of rights, the director shall, in principal, exercise his/her rights within five years after the lapse of one year from the date of retirement from the office of officer.

Resolutions at General Meetings of Shareholders on Remuneration for Officers and Other Matters

By the resolutions at the General Meetings of Shareholders held in June 2007 and June 2017, NGK has set the maximum amount of remuneration, etc., excluding stock options, or stock-related remuneration of directors at ¥800 million per year, which includes the amount of ¥60 million per year for outside directors. It was also resolved that the maximum amount of remuneration, etc., concerning stock options to be allocated to directors (excluding outside directors) to be set at ¥200 million per year, and the maximum amount of remuneration, etc. of Audit & Supervisory Board Members at ¥100 million per year. Furthermore, in terms of the number of officers that these resolutions apply to, Articles 20 and 31 of the Articles of Incorporation of NGK stipulate that the prescribed number of directors shall not exceed fifteen and the prescribed number of Audit & Supervisory Board Members shall not exceed five. In addition, NGK discontinued the retirement bonus system for officers at the conclusion of the 139th Annual General Meeting of Shareholders held in June 2005.

Remuneration of Directors and Audit & Supervisory Board Members (Fiscal 2019)

Director category Total remuneration
(million yen)
Total remuneration by type (million yen) Applicable directors
(people)
Fixed
remuneration
Performance-linked
remuneration
Stock options Retirement benefits
Directors (excluding Outside Directors) 535 377 113 44 9
Audit & Supervisory Board Members
(excluding Outside Audit & Supervisory Board Members)
59 59 3
Outside Directors and Outside Audit &
Supervisory Board Members
66 66 7

Directors Receiving Total Remuneration of ¥100 Million or More (Fiscal 2019)

Name Director category Company
category
Total remuneration by type (million yen) Total
remuneration
(million yen)
Fixed
remuneration
Performance-linked
remuneration
Stock options Retirement benefits
Taku Oshima Director Submitting
companies
65 26 8 100