In Japan, Underpaid—and Loving It

Japan is the land of the bargain-basement CEO. On June 30 securities regulators began requiring Japanese companies to disclose pay for executives making more than 100 million yen ($1.1 million). While the headlines went to the top earners—foreigners Carlos Ghosn of Nissan Motor (NSANY) and Sony's (SNE) Howard Stringer—the big surprise was how few Japanese business leaders take home super-size paychecks.

Although pay for Japanese executives has more than doubled in the past decade, the government says, fewer than 300 people at Japan's 3,813 public companies earned enough in 2009 to require disclosure, according to PricewaterhouseCoopers. Companies listed on Japan's stock exchanges paid their chief executives an average of $580,000 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.

A drawback of Japan's low pay is that it's harder to recruit abroad because junior executives overseas can end up with higher salaries than their peers—or bosses—at headquarters. "They have to make a special case for hiring a VP who's making more than the president," says Motohiro Morishima, a professor of human resources at Hitotsubashi University. At Takeda Pharmaceutical in Osaka, the CEO takes home $2.5 million—half as much as the U.S. sales chief.

Most Japanese bosses have been hired from inside their companies. "There's no market for executives," says Kotaro Tsuru, a corporate governance expert at the Trade Ministry's research institute. "The reasonable price for a CEO is decided by each firm separately." Nissan's Ghosn, Japan's top-paid CEO, took home $10 million in 2009. Over at Toyota Motor (TM), meanwhile, Chairman Fujio Cho earned $1.5 million. CEO Akio Toyoda wasn't among the four executives who received more than $1.1 million (though as the founder's grandson, he owns about $160 million in company shares). Sony's Stringer, Japan's second-highest-paid executive, made $9.1 million. At rival Panasonic (PC), nobody earned enough to require disclosure under the new rules.

With wealth still considered unseemly in Japan, there's little pressure for salaries to rise. "My house is small, but I'm happy," says Yukio Sakamoto, CEO of Elpida Memory, Japan's largest semiconductor maker, whose pay was under the reporting threshold. "I commute by train every day and have never had a problem."

The bottom line: Japan's CEOs earn far less than Americans or Europeans. The pay gap could be a problem as Japanese companies expand abroad.

    Before it's here, it's on the Bloomberg Terminal.