Compensation for Board of Directors and Audit & Supervisory Board Members

Last update: June 2, 2021

Introduction of a non-financial indicator from FY2021

Aiming for the balance of corporate value and social value, the Company decided to add a target to reduce the amount of CO2 emissions under the environmental declaration called『 GREEN CHALLENGE 2050』made in May 2019, as a non-financial indicator of the Key Performance Indicator (KPI) for the stock-based compensation from the fiscal year ending February 28, 2021.

* For the target level of the amount of CO2 emissions for each fiscal year as the KPI for the stock-based compensation, it will be the target level for each fiscal year calculated based on the assumption of the actual amount of emission for the fiscal year ended February 28, 2019 to be equally reduced for each fiscal year to achieve the target level for the fiscal year ending February 28, 2031 (reducing emissions from Group store operations by 30% compared to the fiscal year ended February 28, 2014).

Policies and procedures in determining the compensation of Directors and Audit & Supervisory Board Members
[CGC Principle 3.1(iii)]

1Basic views on compensation for Directors and Audit & Supervisory Board Members

The Company considers the compensation system for Directors and Audit & Supervisory Board Members of the Company (in this Policy, “officers”) to be “an important mechanism to appropriately take risks for the sake of the continued growth of the medium- and long-term corporate value and sustainable growth of the Group, based on our basic views on corporate governance,” and builds and operates the system based on the points set forth below.

• Emphasis is placed on the link between the financial results and corporate value of the Group, and establishing a system that further increases the motivation and morale to contribute to improved financial results and increased corporate value continuously over the medium to long term.

• To secure highly capable human resources who will support enhanced corporate governance through appropriate oversight and auditing of operational execution, provide compensation levels and systems commensurate with responsibilities.

• Ensure the objectivity and transparency of the compensation decision process, and establish a compensation system trusted by all stakeholders.

• With regard to the design of a specific compensation system for officers, continue to consider tailoring it more appropriately in light of future trends in legal systems and society.

2Compensation levels

The levels of compensation for officers will be determined, taking into consideration various fundamentals in the business content and the business environment of the Company, with reference to the compensation levels of officers in major companies of the same size as the Company based on market capitalization and operating income levels, etc.

3Compensation composition

(1) Operating Directors

(a) Compensation composition ratios

The compensation composition ratios for operating Directors (*) are as follows:

Compensation composition ratios Compensation composition ratios

* Calculated under the assumption that bonuses and tock-based compensation are based on a standard compensation amount.

(b) Composition

i) Fixed Compensation

• A fixed monetary compensation commensurate with the responsibilities of each position will be paid.

• Compensation will be paid monthly during the term of office.

ii) Performance-based compensation (bonuses)

• Short-term incentive compensation will be a performance-based compensation that varies based on the company’s business performance and individual evaluations, etc., for the relevant fiscal year.

• Compensation will be paid annually after the company’s business performance and individual evaluations, etc., for the relevant fiscal year have been confirmed.

• The Key Performance Indicators (KPIs) for performance-based compensation (bonuses) are per the table below. While evaluating the degree of improvement of profit-making capability in the main business, for incorporating the shareholders’ viewpoint, consolidated ROE and consolidated net income are also used together as KPIs.

Key Performance Indicators for performance-based compensation (bonuses)

KPIs Ratio Purpose of evaluation
(a) Consolidated Operating Income 60% Evaluation of the degree of improvement of the capability of making profit
(b) Consolidated ROE 20% Evaluation of profitability against equity
(c) Consolidated Net Income 20% Evaluation of the degree of achievement of budgeted net income

iii) Stock-based compensation

• Medium- and long-term incentive compensation will be a performance-based and stock-based compensation that varies based on the company’s business performance, management indicators, non-financial indicators, etc., (introduction of the BIP Trust system* as a stock-based compensation system was resolved at the Annual Shareholders’ Meeting held in May 2019).

• Performance-based and stock-based compensation will enhance sharing profits and risks with our shareholders who have medium- and long-term perspectives by providing points during the term of office based on which shares will be delivered.

• The covered period will be four fiscal years starting from the fiscal year ended February 29, 2020.

• Shares will be delivered to Directors upon their retirement.

• Points to be granted for each fiscal year will be calculated by multiplying the standard points based on their position by a performance-based coefficient and will vary between 0% and 200% depending on the achievement level of targets, etc.

• The KPIs for stock-based compensation are per the table below. In order to incorporate medium- and long-term shareholder perspectives, consolidated ROE and consolidated EPS are used as indicators, and in order to evaluate that these can be achieved by strengthening the capability for making profit by the main business, consolidated operating income is also used together as a KPI.

• The Company, aiming for the balance of corporate value and social value, added a target to reduce the amount of CO2 emissions under the environmental declaration called 『GREEN CHALLENGE 2050』 made in May 2019, as a non-financial indicator of the KPI for stock-based compensation from the fiscal year ended February 28, 2021.

* A BIP (Board Incentive Plan) trust is an incentive plan for officers established with reference to a performance share plan and a restricted share compensation plan in the U.S.

Key Performance Indicator for stock-based compensation

KPIs Ratio Purpose of evaluation
(a) Consolidated Operating Income 40% Evaluation of the degree of improvement of the capability of making profit
(b) Consolidated ROE 40% Evaluation of profitability against equity
(c) Consolidated EPS 20% Evaluation of net income from shareholders’ viewpoint
(d) CO2 Emissions * See the formula below Evaluation of the degree of promotion of reducing the environmental burden

* Formula of the performance-based coefficient:

Performance-based coefficient = {(a)+(b)+(c)}× (d)

(a) “Consolidated operating income” related coefficient × 40%

(b) “Consolidated ROE” related coefficient × 40%

(c) “Consolidated EPS” related coefficient × 20%

(d) “CO2 emissions” related coefficient

• When evaluating KPIs, the range of compensation of Representative Directors is set wider by using different performance-based coefficients from other Directors, so that the compensation of Representative Directors will be more affected by the link to performance.

• If an eligible Director commits a material illegal or unlawful act, no shares under this system will be delivered to such Director (malus) or the Company may request that such Director refund money corresponding to the shares delivered to him (clawback).

(2) Outside Directors and Audit & Supervisory Board Members

(a) Compensation composition ratios

The compensation composition ratios for Outside Directors and Audit & Supervisory Board Members are as follows:

Compensation composition ratios Compensation composition ratios

(b) Composition

Fixed Compensation

• With an emphasis on further strengthening the independence of Outside Directors and Audit & Supervisory Board Members from management, the compensation of Outside Directors and Audit & Supervisory Board Members consists only of fixed compensation. Performance-based compensation (bonuses and stock-based compensation) will not be paid to Outside Directors and Audit & Supervisory Board Members.

• Compensation will be paid monthly during the term of office.

4Compensation governance

(1) Compensation Committee

The Company has established a compensation committee (the “Compensation Committee”) to ensure objectivity and transparency in the procedures for deciding the compensation of Officers, etc. (referring in this Policy to Directors, Audit & Supervisory Board Members, and executive officers). The committee’s chair and the majority of its members are Independent Outside Directors, and all of its members are Directors other than Representative Directors.

(2) Method of determining compensation

This Policy, the basic policy on compensation of officers, is determined by the Board of Directors through deliberations by the Compensation Committee. Based on this Policy, the amount of compensation of each Director is deliberated by the Compensation Committee in accordance with the evaluation of each Director’s function, degree of contribution, and the Group’s results, as well as the degree of achievement of KPIs, and then determined by the Representative Director, who is entrusted with such responsibility by the Board of Directors to whom the Compensation Committee reports, and who makes determinations based on the reports of the Compensation Committee.
 The compensation of each Audit & Supervisory Board Member is determined through discussions by the Audit & Supervisory Board Members.

5Compensation limit for Directors and Audit & Supervisory Board Members

The amount of compensation of officers is decided within the following compensation limits, determined at the Shareholders’ Meeting.
 The Company has already abolished the severance payment system for officers, and no severance payments will be paid.

(1) Directors

• Monetary compensation

Not more than ¥1 billion per year (not including employee salaries paid to Directors who serve concurrently as employees)
(Resolved at the 1st Annual Shareholders’ Meeting held on May 25, 2006)

• Stock-based compensation

3 fiscal years/not more than ¥600 million (not more than ¥200 million per 1 fiscal year)
Limit on the points granted per 1 fiscal year: 40,000 points (1 point = 1 common stock)
(Resolved at the 14th Annual Shareholders’ Meeting held on May 23, 2019)

(2) Audit & Supervisory Board Members

• Monetary compensation

Not more than ¥200 million per year
(Resolved at the 14th Annual Shareholders’ Meeting held on May 23, 2019)