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CEO pay landscape in Japan, the U.S. and Europe — 2019 Analysis

Executive Compensation
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By Sumio Morita , Naoto Ogawa , Yuki Sato and Johnathon Brown | December 6, 2019

This analysis on CEO pay is based on publicly available data for 446 companies in Japan, France, Germany, the U.K. and the U.S.

While Japanese CEOs are still compensated significantly less than their counterparts in the U.S. and Europe, compensation plans are beginning to place weight on performance-based incentives.

A recent Willis Towers Watson analysis of CEO compensation in Japan and four other countries has found that a slowdown in annual growth of total compensation paid to CEOs in Japan (3.3% increase in fiscal year 2018 compared with 7.9% in 2017) reflects a transition by Japanese companies in the way they manage and operate performance-based plans. While Japanese CEOs are still compensated significantly less than their counterparts in the U.S. and Europe, compensation plans in Japan are beginning to place a greater weight on performance-based incentives, which now make up 58% of total CEO compensation (52% in fiscal year 2017). This shift appears to be in response to the changing landscape of corporate governance and related executive remuneration principles in Japan.

The analysis undertaken examined publicly available CEO pay data for 446 companies in Japan, France, Germany, the U.K. and the U.S., which each had more than one trillion Japanese yen in sales revenue in fiscal year 2018.

Survey details

Figure 1 below compares CEO compensation levels across the five countries, while Figure 2 compares CEO pay mix. Figure 3 summarizes the historical transitions of the median CEO compensation for the most recent four years. Finally, figure 4 below similarly compares historical transitions of the CEO pay mix for the same period.

Survey data sources

Results are based on an analysis of public disclosures, detailed as follows:

U.S.: Median of Fortune 500 companies with revenue above ¥1 trillion (262 companies)

U.K.: Median of FTSE100 companies with revenue above ¥1 trillion (49 companies)

Germany: Median of DAX constituents with revenue above ¥1 trillion (25 companies)

France: Median of CAC 40 companies with revenue above ¥1 trillion (33 companies)

Japan: Median of top 100 companies by market cap and with revenue above ¥1 trillion (77 companies)

Pay mix is calculated using the average value of 59 companies excluding outliers.

Note: Currency exchange rates are based on average rates in 2018
(USD 1 = JPY 110.43; GBP 1 = JPY 147.48; EUR 1 = JPY 130.42)


Key observations

Sumio Morita, Senior Director, Rewards Leader (Japan), Talent and Rewards

According to the results of this Willis Towers Watson analysis, the total compensation of Japanese CEO increased 3.3% year on year in fiscal year 2018. This growth rate increase is less than half observed in fiscal year 2017 when there was a year-on-year increase of 7.9%. Particularly notable is that the rate at which long-term incentives (LTIs) in Japan increased in fiscal year 2018 at 6% was significantly lower than the results of the 2018 analysis (an increase of approximately 66%). The results suggest that many companies have now finished introducing LTI plans, and as such, the implementation of new LTI plans has slowed.

It is increasingly necessary to improve the effectiveness of remuneration committees, ensuring that they clearly disclose and explain to stakeholders the relevant company’s remuneration policies.

On the other hand, total compensation levels at U.S. companies rose by 6.9% in fiscal year 2018 driven by higher LTI award values. In contrast, levels of compensation at European companies have remained stagnant compared with 2018. This is apart from French companies where total compensation levels decreased slightly (2.5% year on year) (all changes have been calculated in local currency). Although the rate at which compensation increased year on year in Japan exceeded that of Europe, there remains a significant pay gap between the two regions as can be seen in the regional total compensation results of this analysis.

Despite the slowed growth in CEO pay increase, the trend of Japanese companies increasing the proportion of performance-linked compensation within pay packages remains prominent, with incentives now making up 58% of total compensation (52% in 2018’s analysis); however, the proportion of Japanese companies that made large actual payouts remains unchanged year on year, with 36% of companies paying total compensation exceeding ¥200 million in 2019 (compared with 37% in 2018) and 19% paying total compensation exceeding ¥300 million (compared with 19% in 2018). The number of Japanese companies that paid out more than ¥400 million to their CEOs increased from eight to 11 in fiscal year 2018, which suggests that the number of companies adopting a more globally competitive executive pay structure is rising. Whether this trend will continue or begin to permeate to a wider breadth of Japanese companies remains a point of focus.

The results of this year’s analysis reflect the slowdown in the boom of compensation reform in Japan brought on by the introduction of the Japanese Corporate Governance Code. . Many Japanese companies are now transitioning to focus on how best to operate and effectively manage these new compensation systems. To that end, it is increasingly necessary to improve the effectiveness of remuneration committees, ensuring that companies clearly disclose and explain to stakeholders relevant remuneration policies in addition to the deliberation process that was used to reach said policies and pay decisions.


This article is an English translation from the original Japanese press release dated August 2, 2019

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