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).

Performance-linked remuneration consists of (1) short-term performance-linked remuneration, which is a bonus linked to business performance for each fiscal year, and (2) medium- to long-term performance-linked remuneration, which is linked to changes in indices over a target period of three years (Note). The medium- to long-term performance-linked bonuses are stock-based compensation in the form of common shares of the Company, with the aim of providing Directors with incentives to enhance the Company's corporate value over the longer term and to promote further value sharing between Directors and shareholders. The introduction of performance-linked remuneration was approved at the 26th Ordinary General Meeting of Shareholders held on September 26, 2022, and the maximum amount is 41,250 thousand yen per director per year (the number of directors immediately after the said meeting is 4 (including 2 outside directors)). In addition, at the 26th Ordinary General Meeting of Shareholders held on September 27, 2022, the introduction of medium- to long-term performance-linked compensation as stock-based compensation was approved, with the maximum amount of compensation being 100,000 thousand yen per subject period and the number of shares to be delivered by the Company to subject directors under this plan being is limited to 60,000 shares per year and 100,000 shares in total per year for all directors (four directors (including two outside directors) immediately after the said shareholders' meeting).

If any of the events (determined by the Board of Directors) that are necessary for the achievement of the purpose of the stock compensation plan, such as the subject director's resignation from the post of director of the Company without justifiable reason or certain acts of misconduct, occur, the monetary compensation under the plan will not be paid to the subject director and no shares of the Company will be delivered to him.

In addition, with respect to the President and Representative Director among the eligible directors, if the annual growth rate (CAGR) of adjusted earnings per share for the three-year period ending at the end of the eligible period ) is less than 18%, no monetary compensation will be paid to the President and Representative Director under this plan and no shares of the Company will be delivered to him.

Since outside directors are independent from the execution of business, performance-linked remuneration is not applied to them, and the above fixed remuneration is paid to them.
(Note) Three years from the month containing the date of the Company's annual general meeting of shareholders for each year. The initial coverage period will run from September 2018 through September 2021, and thereafter from September of each year through September of the three years following that year.

The amount of remuneration for Directors who are members of the Audit Committee is also fixed, and is determined by consultation between the Audit Committee members, taking into consideration the division of duties between Directors and Audit Committee members, within the maximum amount of remuneration resolved at the General Meeting of Shareholders. The maximum amount of remuneration was resolved at the 26th Ordinary General Meeting of Shareholders held on September 27, 2022 to be no more than 55,000 thousand yen per year (the number of directors who are members of the Audit Committee immediately after the said meeting is three).

Short-term performance-linked remuneration is a compensation system in which compensation is paid in cash and is linked to the year-on-year increase or decrease in consolidated operating income, which is consistently emphasized in the Company's medium- to long-term management strategy, medium-term management plan, and annual performance. The amount is calculated by multiplying the base amount, which is determined according to position, by the short-term incentive coefficient, which ranges from 0% to 200% depending on the change in consolidated operating income from the previous year. Previously, the Company's stock price was also considered as a coefficient, but since the rate of increase in the Company's stock price is reflected in the mid- to long-term performance-linked compensation, the Board of Directors resolved on August 19, 2020 to use the rate of increase in consolidated operating income as the coefficient from the 25th fiscal year onward. Specifically, it is calculated by the following formula.

Consolidated operating income for the current fiscal year ending June 30, 2022, which serves as a performance indicator, was 3,247 million yen, a 115% change from consolidated operating income of 2,826 million yen (Note) in the previous fiscal year. As a result of applying this to the formula in (3) above, the short-term incentive coefficient was 1.24 as shown below, and 124% of the base amount of short-term performance-linked remuneration was paid as short-term performance-linked remuneration.
 

Short-term incentive coefficient = 1 + 0.5 x (Consolidated operating income for the current period: 3,247 million yen - (Consolidated operating income for the previous period: 2,826 million yen x 112%)) / (Consolidated operating income for the previous period: 2,826 million yen x 6%) = 1.24

This is a performance share unit plan under which the Company's common stock is paid as a performance-linked stock remuneration plan in order to provide directors with incentives to improve the Company's corporate value over the long term and to promote further value sharing between directors and shareholders. The number of shares will be determined by multiplying the number of shares determined by our board of directors (the base number of shares to be delivered) by the share delivery ratio determined according to our stock growth rate, which is a representative indicator of our company's corporate value. The Company's stock growth rate is calculated by dividing the Company's Total Shareholder Return (TSR) during the subject period by the growth rate of the Tokyo Stock Exchange Stock Price Index (TOPIX) during the subject period.

After the end of the subject period, monetary compensation claims will be paid to the subject directors, and upon the issuance of shares or disposal of treasury stock by the Company, the Company shares will be delivered by having all such monetary compensation claims contributed in kind.

With regard to the stock-based compensation for the President and Representative Director, the Company's medium- to long-term management strategy calls for an annual growth rate of 18% in operating income. The Company's 25th Annual General Meeting of Shareholders held on September 28, 2021 approved the restriction on the grant of stock compensation to the President and CEO if the adjusted net income per share for the three-year period up to the end of the subject period (CAGR) is less than 18%.
Our total shareholder return for the period covered from September 2018 to September 2021 was 204.1% and TOPIX growth rate was 118.1%, resulting in our equity growth rate of 172.8% in A above. Since this corresponds to (4): 100% of the above share delivery ratio, 100% of the 8,705 shares, which is the standard number of shares delivered, were delivered.
 

The ratio of fixed remuneration and performance-linked remuneration for directors is as follows, using the achievement of performance targets as a guide (based on a short-term performance incentive coefficient of 100%).

Not stated because there are no persons whose total amount of consolidated remuneration, etc. is 100 million yen or more.