Director's remuneration

Remuneration for the Company's directors is divided into two categories: fixed remuneration (fixed periodic remuneration of the same amount) and performance-linked remuneration.
Fixed remuneration is paid in a standard amount by position, taking into consideration the level commensurate with the required abilities and responsibilities. As for the maximum amount, the 26th Annual General Meeting of Shareholders held on September 27, 2022 approved the annual amount of fixed remuneration to the Company's directors as 150,000 thousand yen or less (the number of directors immediately after the said meeting is four).

The performance-linked remuneration consists of (1) short-term performance-linked remuneration, which consists of a bonus linked to the Company's performance for each fiscal year, and (2) medium-term performance-linked remuneration, which consists of performance-linked stock-based remuneration linked to Corporate Governance changes in indicators during the subject period. The performance-linked remuneration consists of (1) short-term performance-linked remuneration, which is a bonus linked to the Company's performance for each fiscal year, and (2) medium-term performance-linked remuneration, which is a performance-linked stock remuneration linked to changes in indices during the subject period. The medium-term performance-linked remuneration is a stock-based remuneration in which shares of the Company's common stock are delivered, with the aim of further sharing value between the subject directors and shareholders through a sustained increase in the share price, and to give the subject directors an incentive to continuously improve the Company's corporate value. The performance-linked bonus was approved at the 26th annual general meeting of shareholders held on September 27, 2022, with an upper limit of 41,250 thousand yen per year per eligible director (the number of eligible directors immediately following the said meeting was two). The maximum amount of the medium-term performance-linked remuneration was approved at the 26th Ordinary General Meeting of Shareholders held on September 27, 2022 as 100,000 thousand yen per subject period, and the number of shares to be delivered to each subject director under this plan as 60,000 shares or less per subject director, and 100,000 shares or less in total per year for all subject directors. The maximum number of shares to be issued to each eligible director under the plan is 100,000,000 yen per eligible period, and the maximum number of shares to be issued to all eligible directors under the plan is 60,000 shares per eligible director and 100,000 shares in total per year.

The terms and conditions of the medium-term performance-linked remuneration are reviewed by resolution of the General Meeting of Shareholders as necessary, and the most recent resolution was approved at the 27th Ordinary General Meeting of Shareholders held on September 27, 2023, consisting of two parts: (1) a part in which the Company's common stock is delivered at the end of a one-year subject period on the condition that the Company's stock price has risen from the beginning of the subject period, (The number of eligible directors immediately after the said shareholders' meeting was two).

 

The amount of remuneration for Directors who are members of the Audit and Supervisory Committee is fixed compensation only, in consideration of their responsibilities and roles in supervising and auditing the execution of business operations. The maximum amount of compensation is determined through consultation among the Directors who are Audit Committee members, taking into consideration such factors as full-time and part-time status, internal and external directors, and the division of duties. The maximum amount of remuneration was resolved at the 26th Ordinary General Meeting of Shareholders held on September 27, 2022 to be within 55,000 thousand yen per year (the number of directors who are Audit Committee members immediately after the said General Meeting of Shareholders is three).

Short-term performance-linked remuneration is a remuneration system in which remuneration is paid in cash. The amount is calculated by multiplying a standard amount determined according to position and other factors by a short-term incentive coefficient. Specifically, the amount is calculated by the following formula

 

Short-term performance-linked remuneration = Short-term performance-linked remuneration standard amount x short-term incentive coefficient

 

Directors (excluding outside directors and directors serving as audit committee members; hereinafter referred to as “Eligible Directors” in this section “② Purpose, Basis for Metrics, and Specific Calculation Method of Performance-Linked Remuneration and Performance-Linked Stock Remuneration”) shall be monetary remuneration calculated based on the year-on-year change in consolidated net income after taxes, which is consistently emphasized in the Company's mid-to-long-term management strategy, mid-term management plan, and annual performance. The amount is calculated by multiplying a base amount (performance-linked bonus base amount) determined according to position and other factors by a short-term incentive coefficient set within the range of 0% to 150%, based on the fluctuation in consolidated net income after taxes compared to the previous fiscal year.

 

The coefficients are calculated as follows

Where the current consolidated net profit after tax is denoted as “a” and the previous consolidated net profit after tax as “b”, the coefficient is determined using the following formula

 

   (i) If “a” is less than or equal to “b”: 0

   (ii) If “a” exceeds ‘b’ but is less than “b” × 137.5%: (a ÷ b - 1) ÷ 0.375 × 1.5

　 (iii) If “a” is 137.5% or more of “b”: 1.5

 

The performance indicator, consolidated net income after taxes for the current fiscal year, was ¥3,434 million, Corporate Governance Avant Group Corporation 23 representing a change rate of 120.5% from the previous fiscal year's consolidated net income after taxes (¥2,850 million). As short-term performance-linked remuneration, 81% of the short-term performance compensation base amount (¥34 million) will be paid.

　Short-term incentive coefficient = 

　(Current consolidated net income after tax: ¥3,434 million ÷ Previous consolidated net income after tax: ¥2,850 million - 1) ÷ 0.375 × 1.5 = 0.81

This is a performance-based stock remuneration program that grants shares of the Company's common stock based on the achievement of performance targets. Regarding medium- to long-term performance-linked remuneration (stock), pursuant to the resolution of the 28th General Meeting of Shareholders held on September 25, 2024, and that the scheme would be changed to deliver the Company's common stock through a trust established by the Company's monetary contribution for the period after the target period from September 2024 to September 2025. Furthermore, the amendment stipulates that a transfer restriction shall be imposed, prohibiting the transfer, establishment of security interests, or other disposition of the shares until immediately after the relevant director resigns from any position as a director of the Company or any other position predetermined by the Company's Board of Directors. There is no substantive change to the amount paid per fiscal year or the number of shares delivered to directors covered by the scheme.

For the medium-to-long-term performance-linked remuneration (stock) for which decisions regarding payment in the current fiscal year were made, those based on the pre-revision system covering the period from September 2021 to September 2024 saw the Company's TSR (Total Shareholder Return) reach 137.3% during the target period, and the TOPIX growth rate was 127.4%. The performance metric, the Company's stock growth rate, was 107.7%.

This falls under the category of ②: A being 100% or more but not exceeding 112% in the stock grant ratio below. Therefore, 21.2% of the base grant amount of 6,579 shares was granted.

Regarding the annual adjusted earnings per share growth rate set as the restriction for the President and Representative Director's stock remuneration grant, the annual adjusted EPS growth rate for the three-year period from September 2021 to September 2024 was 14.7%, falling below the grant threshold of 18%. Consequently, only one director qualified as an eligible recipient.

For medium-to-long-term performance-based remuneration (stock) for which decisions regarding payment during the current fiscal year were made, and which is based on the revised system covering the period from September 2023 to September 2024, the average closing price of the Company's common stock.

For those with a target period from September 2023 to September 2024, in relation to Part I, the average closing price of the Company's common stock on the Tokyo Stock Exchange in September 2023 was exceeded by the average closing price in September 2024. Therefore, 14,507 shares were granted to the two eligible directors.

Regarding Part II, the Company's TSR (Total Shareholder Return) during the target period was 156.3%, The TOPIX growth rate was 110.5%, and the Company's stock growth rate, the performance metric, was 141.5%. This falls under the stock grant ratio category ③: A (112% or more but not exceeding 150%), so 85% of the base grant amount of 14,507 shares was granted.