"Social issues playing bigger role in Japan executive pay" 12 October 2022

Japanese companies are creating incentives for senior executives to address social issues, linking a portion of their compensation to workplace safety and other efforts as investors increasingly scrutinize corporate citizenship.

Businesses here have lagged behind their Western counterparts on engagement in socially conscious initiatives. They now seek to encourage top management to emphasize social responsibility and so improve corporate value.

[...] Hitachi is incentivizing officers to prevent workplace accidents and improve employee satisfaction. One-third of pay for all its operating officers is linked to short-term results, including earnings and, since fiscal 2021, environmental goals. Social metrics are added to the criteria in fiscal 2022.

[...] Denso is promoting workforce diversity. Roughly 50% to 60% of officer compensation is tied to earnings and other variable factors, with 10% of this based on sustainability evaluations. Starting in fiscal 2022, such evaluations include the number of women in management and a metric of foreign employees.

These efforts come after Nissan Motor started using human rights metrics for determining pay in fiscal 2021. The automaker, which prohibits child or forced labor throughout its supply chain, uses evaluations by outside parties in executive assessment.

The practice of linking compensation to environmental, social and governance factors has not widely taken root in Japan. And among companies here that are embracing it, many have focused on environmental efforts. But the coronavirus pandemic has raised investor interest in corporate engagement in communities and society.

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