CLC Compensat|on

1he classlc prlnclpalagenL confllcL ls aL Lhe rooL of Lhe !apanese corporaLe governance
problem 1he above graph shows Lhe dlscrepancy beLween CLCs of !apanese companles and
Lhelr peers boLh ln Lerms of absoluLe dollar Lerms and ln Lerms of sLrucLure As Lhe Wall SLreeL
!ournal puLs lL 1he dlscrepancy ls galnlng aLLenLlon as cashrlch !apanese companles go on an
overseas shopplng spree" !apanese companles such as nomura and 1oyoLa have Lo reconclle
Lhls low pay sLrucLure ln order Lo malnLaln Lhelr compeLlLlve advanLage when Lhey expand
overseas or ln order Lo aLLaln Amerlcan or Luropean CLCs lL ls evldenL from Lhe graph LhaL
!apanese CLCs' pay ls abouL oneLenLh of Lhelr uS counLerparLs Cne could argue LhaL markeL
forces seL Lhls pay level buL lL ls hard Lo reconclle Lhls when one Lakes lnLo accounL Lhe facL LhaL
!apanese companles such as 1oyoLa and Ponda are much blgger Lhan many WesLern companles
and derlve an lncreaslng porLlon of Lhelr revenues from overseas operaLlons Secondly Lhe pay
sLrucLure does noL allgn manager and shareholder lnLeresLs Comparlng a !apanese CLC's sLock
opLlon package as a percenLage of LoLal compensaLlon shows LhaL lL ls abouL 20 of pay versus
abouL 60 and 30 ln Lhe uS and Lurope respecLlvely WlLh Lhls Lype of sLrucLure long Lerm
performance of CLCs ls noL opLlmlzed whlch would lead Lo Lhe Lype of mulLlyear scandal
whlch Clympus recenLly uncovered
My recommendaLlon Lo Lhe board (as represenLaLlves of shareholders) ls Lo clamor for
lncreased shareholder acLlvlsm and demand LhaL CLC pay be beLLer llnked Lo shareholder
reLurns Speclflcally aL leasL 30 of CLC pay should be Lled Lo longLerm performance as seen
ln uS and Lurope 1hese opLlons should vesL over 3 Lo 3 years and should have clawback
provlslons Lo allow for repaymenL ln Lhe case where a CLC or oLher senlor execuLlve ls found
gullLy of any acL of shareholder value desLrucLlon 1hls wlll solve Lhe prlnclpalagenL problem
and ensure susLalnable value creaLlon for shareholders
lnsLlLuLlonally Clympus should Lake a lead ln uslng shareholder acLlvlsL groups such as
lnsLlLuLlonal Shareholder Servlces Lo clamor for reforms wlLhln Lhe (!apanese) sysLem 1hls
organlzed movemenL wlll allow for greaLer vlslblllLy and ensure LhaL Lhe prlnclpalagenL
problem recelves naLlonal coverage AL Lhe same Llme Clympus wlns goodwlll from !apanese
lnvesLors as a champlon of corporaLe governance besL pracLlce 1hls could resulL ln lncreased
share prlce for Lhe company ln Lhe long run