What Do Japanese Ce Os Really Make?

Japan's current economic woes have produced plenty of pain in executive suites there--and not just because executives hate declining profits. Top managers are getting hit directly in their own wallets.

In the course of the past year, a steady stream of Japan's leading companies have announced cuts in pay for their chief executive officers and other senior managers. At Fujitsu Ltd., some executives have seen their compensation slashed by up to 35%; at Hitachi Ltd., 15%. "When company results are down, managers have to take responsibility and accept such cuts," says Takahiko Shinohara, a managing director at Hitachi.

YAWNING GAP. Some U.S. companies are finally dishing out the same medicine to their executives. But a ground-breaking BUSINESS WEEK study--the first to estimate CEO pay in Japan using current and past tax data--shows that they would have to impose far more draconian cutbacks to get anywhere near the low levels of compensation their Japanese counterparts receive.

The study found that even leading entrepreneurs such as Hiroshi Yamauchi of Nintendo and Shoichiro Toyoda of Toyota pay themselves a mere fraction of what such American managers as Charles Lazarus of Toys `R' Us and Leon Hirsch of U.S. Surgical pull down (table). Against Yamauchi's estimated 1991 income of $6.3 million, which made him Japan's highest-paid CEO that year, Thomas F. Frist Jr. of Hospital Corp. of America reaped $127 million, thanks to stock options--which are unheard of in Japan.

At BUSINESS WEEK's request, the Tokyo office of Towers Perrin, a New York-based consulting firm, used data from income tax returns to estimate 1991 pay for the top executives of the 50 largest Japanese industrial companies. Data for 1992 are not yet available. Excluding Yamauchi's $6.3 million, which is an obvious extreme, Japanese chiefs averaged $872,646 in 1991--just about one-fourth the pay of U.S. chieftains.

Looked at by other measures, the disparities in American and Japanese pay are equally stunning. In Japan, the CEO makes less than 32 times the pay of the average factory worker, and 26 times what the typical schoolteacher earns--not including bonuses for workers and teachers that can boost their annual salaries by a third. In the U.S., that gap is considerablywider: roughly 157 and 113 times, respectively.

PERK VALUES. Moreover, the difference between what U.S. and Japanese top executives make may be even greater than these estimates would suggest. Unlike U.S. public companies, Japanese companies aren't required to disclose executive pay.

The Japanese numbers are derived from public records that show the amounts forked over by Japan's highest taxpayers, so they may include income from such things as the sale ef property. To exclude gains unrelated to job-related compensation, Towers Perrin sifted through tax records for each of the 50 executives over a five-year period and then estimated 1991 pay.

Most Japanese companies, including Sony Corp., declined to comment specifically on the findings. Spokesmen for such companies as Fanuc Ltd. and Seven-Eleven Japan Co., whose CEOs rank near the top, say the tax-based estimates are much higher than actual job-related compensation. An official at Japan Airlines Co. says President Matsuo Toshimitsu's compensation is $257,235, against the Towers Perrin estimate of $391,000. But a spokesman for Matsushita concedes that the number for former President Akio Tanii "may not be toofar off."

For years, some American CEOs have claimed that Japan's top executives receive more than meets the eye in the form of hidden perks, such as hefty expense accounts, pricey golf-club memberships, chauffeured limousines, and the occasional company-provided house. But consultants say these goodies still fail to match the millions more that U.S. CEOs bring in, and they aren't all that different from what many U.S. bosses get, too.

So what accounts for the Japanese restraint or the U.S. excess? Gerald W. Williams, general manager of Towers Perrin's Tokyo office, thinks it's largely a function of Japan's group style of management. "We know of cases where Japanese executives of Western firms here have declined individual bonuses on the grounds that business results are a joint effort and rewards should be shared," he says. Since top executives rarely switch companies in Japan, there's also no American-style market for CEOs that helps bid up pay.

HEAVY WEIGHS THE WALLET. The flip side of the coin, however, is that few Japanese CEOs are held as individually responsible for their companies' performance as American CEOs are. "In many cases, the president of an American company is carrying 90% of the responsibility for making decisions attached to that office," says Satoshi Iue, the former president of Sanyo Electric Co. "That's rarely the case in Japan, where so much of the burden of decision-making is distributed among subordinates."

Although few Japanese executives feel underpaid, some resent being hectored by their overpaid American counterparts. "American top executives give themselves very high salaries and then blame us by saying that our prices are too low," says Akio Morita, chairman of Sony Corp. "American top management must adjust and restrain themselves." With all the outcry over pay in the U.S., that may finally happen.