Bargain-Basement CEOs Run Japan as Ghosn, Stringer Buck Trend

Japan may be home to the bargain- basement chief executive officer.

Rules introduced this year required Japanese companies to disclose pay for executives earning more than 100 million yen ($1.1 million) by June 30. While the headlines went to the top earners -- foreigners Carlos Ghosn of Nissan Motor Corp. and Sony Inc.’s Howard Stringer -- less than 10 percent of Japanese business leaders take home a million dollar paycheck.

Although Japan’s executive pay has more than doubled in the past decade, fewer than 300 people at the country’s 3,813 listed companies earned enough in 2009 to warrant disclosure, according to PricewaterhouseCoopers LLP.

Companies listed on Japan’s stock exchanges paid their CEOs an average of $590,000 in salary and other compensation last fiscal year, PWC estimates, about 16 times more than the typical Japanese worker. Average CEO pay at the 3,000 largest U.S. companies is $3.5 million, including stock options and bonuses, according to The Corporate Library, a research group. That’s roughly 130 times the average worker’s salary, Bloomberg Businessweek reports in its July 5 edition.

Low pay for Japanese executives could be a stumbling block for companies trying to go overseas. Many are likely to find themselves in the situation of Takeda Pharmaceutical Co., where the company’s Japanese CEO Yasuchika Hasegawa earns half as much as its American head of sales.

That gap makes it difficult to recruit overseas managers, who often expect to be paid more than the people they’d report to back at headquarters, said Koji Shirai, a Tokyo-based director at PWC.

Exceptions for Foreigners

“Companies are making exceptions to pay their foreign executives more,” Shirai said. “At a certain point that compromise is going to stop working.”

When Nomura Holdings Inc. bought the Asian and European units of Lehman Brothers Holdings Inc., the brokerage guaranteed the former Lehman employees their bonuses. Days after paying them out in March, at least 12 senior people, including deputy investment banking chief Christian Meissner, quit for jobs at rivals.

Japan’s system of lifetime employment is one reason executive pay is so low. With little job-hopping, most CEOs come up through the ranks and are hired from within the company, said Kotaro Tsuru, a corporate governance expert at the Trade Ministry’s Research Institute in Tokyo.

‘No Market’

“There’s no market for executives here,” he said. “The reasonable price for a CEO is decided by each firm separately.”

That’s evident in the difference in executive pay at companies in the same industry. Nissan’s Ghosn, Japan’s top-paid CEO, took home $10 million. Toyota Motor Corp.’s entire 31- person board got $16 million between them, including $1.5 million for Chairman Fujio Cho. CEO Akio Toyoda, who as the founder’s grandson owns about $160 million in Toyota shares, wasn’t among the four on the board who earned more than the $1.1 million threshold.

Sony’s Stringer, Japan’s second-highest paid executive, made about $9.1 million. At rival Panasonic Corp., no one earned enough to require disclosure.

The new rules have claimed a few casualties. Four foreign executives at Shinsei Bank Ltd., a lender 22 percent owned by the Japanese government, stepped down on June 23 after former Financial Services Minister Shizuka Kamei called their pay “exorbitant.” None made more than $1.5 million. In the U.S., Robert Benmosche, head of American International Group Inc. which is now 80 percent owned by taxpayers, gets $10.5 million.

CEO Wives

Wealth is still considered unseemly in Japan, said Sakie Fukushima, chairman of recruiting firm Korn/Ferry International Japan. The most common complaints about the new disclosure rules came from CEO’s wives who “didn’t want others to know how much they were making,” Fukushima said. “Some wives were even worried their children would be bullied in school.”

For Yukio Sakamoto, president of Elpida Memory Inc., Japan’s largest semiconductor maker, money isn’t the only reward.

“My house is small, but I’m happy,” said the 62-year-old, who lives in a 1,260-square-foot (140-square-meter) house about 30 minutes from central Tokyo. While Sakamoto’s pay didn’t cross the disclosure threshold, he and two other company executives have the right to buy 885,000 shares in stock options.

“There has to be some equality. Otherwise you get situations where rich people have to hire security guards to protect themselves,” Sakamoto said. “I commute by train every day and have never had a problem.”

To contact the reporter on this story: Jason Clenfield in Tokyo at jclenfield@bloomberg.net

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