- Principles of Corporate Governance
- Corporate Governance Structure
- Nomination of Officers
- Compensation of Officers
- Actions to Ensure Board Effectiveness
- Responding to Large-Scale Acquisitions of Seiko Epson Shares
To achieve our goals, promote sustainable growth, and increase long-term corporate value, Seiko Epson continuously improves corporate governance to ensure transparent, fair, and fast decision-making, including by ensuring that independent outside directors comprise at least one-third of the board, and by establishing committees to nominate officers and determine compensation.
Structured as a company with an Audit & Supervisory Committee, Seiko Epson will further improve the supervisory function of the Board of Directors, enhance discussions at Board of Directors meetings, speed up management decision-making, and continue to further increase the effectiveness of corporate governance.
Principles of Corporate Governance
The general principles of corporate governance at Epson are as follows:
- Respect the rights of shareholders, and secure equality.
- Keeping the interests of shareholders, customers, communities, business partners, employees and other stakeholders in mind, work in an appropriately cooperative manner with them.
- Disclose company information as appropriate and ensure transparency.
- Directors, Executive Officers, and Special Audit & Supervisory Officers shall be aware of their fiduciary responsibilities and shall fulfill the roles and responsibilities expected of them.
- Epson shall engage in constructive dialogue with shareholders.
Corporate Governance Structure
Seiko Epson ("the Company") has established itself as a company with an Audit & Supervisory Committee with the aim of strengthening the supervision and monitoring of management and of speeding up decision-making by separating the management supervision and execution of operations.
The main corporate management bodies and their aims are described below.
Board of Directors
The Board of Directors, with a mandate from shareholders, is responsible for realizing efficient and effective corporate governance, through which the Company will accomplish its social mission, sustain growth, and maximize corporate value over the medium and long terms. To fulfill its responsibilities, after establishing the strategic direction of the Company, the Board of Directors supervises general operations to ensure that operations are fair and transparent. The Board of Directors also makes decisions on important business affairs of the Company, such as decisions on the formulation of important business matters, such as the establishment of management plans and business plans and decision on investment projects that exceed a certain fixed amount of money. The Board of Directors establishes a Basic Internal Control System Policy so that business affairs are efficiently conducted under suitable internal controls and shall put in place and monitor the use of a system to manage compliance and risks.
The Board of Directors operates in accordance with the Articles of Incorporation and regulations that were approved by resolution of the Board of Directors. The Board of Directors is composed of 10 directors1, including five Outside Directors. Meetings of the Board of Directors are, as a rule, held once per month and as needed. Meetings of the Board of Directors are chaired by the Chairperson of the Board (who is a Non-Executive Director) per the Board of Directors Regulation. The Board of Directors makes decisions on basic business policies, important business affairs, and other matters that the Board of Directors is responsible for deciding as provided for in internal regulations. Business affairs that the Board of Directors is not responsible for deciding are delegated to executive management, and the Board monitors these. Under the company with an Audit & Supervisory Committee structure, the scope of business affairs delegated by the Board of Directors to executive management, such as making decisions on investment projects that are less than a certain fixed amount of money, has been expanded. As such, matters discussed by the Board of Directors are limited to motions of the highest importance (e.g., governance, capital policy, compliance, risk management, deliberations on megatrends and mid- to long-term strategies), thereby speeding up business decision-making and increasing the agility of business. The Company has specified in the Corporate Governance Policy that at least one-third of the members of the Board of Directors shall be Outside Directors.
1 As of June 30, 2022
Audit & Supervisory Committee
The Audit & Supervisory Committee, with a mandate from shareholders, is responsible for independently and objectively auditing and monitoring the execution of Director duties and for ensuring the sound and sustained growth of the Company. The Audit & Supervisory Committee establishes criteria for properly evaluating potential External Financial Auditors. After selecting External Financial Auditors, the Audit & Supervisory Committee verifies whether External Financial Auditors possess the necessary independence and can provide the requisite audit quality, etc. In addition, the Audit & Supervisory Committee conducts audits in cooperation with internal audit departments and Financial Auditors.
The Audit & Supervisory Committee operates in accordance with the regulations that were approved by resolution of the Audit & Supervisory Committee. The Audit & Supervisory Committee is composed of four Audit & Supervisory Committee members2, three of whom are Outside Directors. It is chaired by a full-time member of the Audit & Supervisory Committee. Meetings are generally held once per month and as needed.
2 As of June 30, 2022
The Compliance Committee hears and discusses important matters concerning the Company's compliance program in order to supervise whether the compliance program is being properly implemented along the executive line. It reports its findings and offers opinions to the Board of Directors.
The Compliance Committee operates in accordance with the regulations that were approved by resolution of the Board of Directors. As an advisory body to the Board of Directors, the Compliance Committee is composed of all 5 Outside Directors and Directors who are full-time members of the Audit & Supervisory Committee3. It is chaired by the full-time member of the Audit & Supervisory Committee, and meetings are held once every six months and as needed. Financial Auditors and the head of the internal audit administrative department can attend meetings of the Compliance Committee as observers.
A Chief Compliance Officer ("CCO") is chosen by the Board of Directors to oversee and monitor the execution of all compliance operations. The CCO periodically reports the state of compliance affairs to the Compliance Committee.
3 As of June 30, 2022
Director Nomination Committee & Director Compensation Committee
Epson has established a Director Nomination Committee and a Director Compensation Committee as discretionary deliberative bodies for the selection and compensation of Directors, Executive Officers and Special Audit & Supervisory Officers. The committees operate in accordance with the regulations that were approved by resolution of the Board of Directors. With the aim of ensuring the transparency, objectivity and independence regarding selections for and compensation of Directors, Executive Officers and Special Audit & Supervisory Officers, the Committees are composed of a majority of Outside Directors and a Chairperson will be elected by the Board from among the Outside Directors. The committees shall be composed of all the Outside Directors, and the President/Representative Director. Directors who are full-time members of the Audit & Supervisory Committee can attend either meeting as observers. The human resources department is the secretariat of the committees.
The outline of each Committee is as follows:
The Mandates, Roles, and Activities of the Director Nomination Committee
The Company establishes as an advisory body to the Board of Directors a Director Nomination Committee to impartially examine through a transparent and objective process the selection of Director candidates and the dismissal of Directors as well as to evaluate and supervise the status of Director successor development plans created by the President and Representative Director, the issues therein, and Director succession plans created by the President and Representative Director.
The Committee met 15 times during the period from April 2021 to the June 2022 Ordinary General Meeting of Shareholders. The Committee deliberated on matters including succession plans for the President and Representative Director, policies for selecting Officers (Directors, Executive Officers and Special Audit & Supervisory Officers) and candidate proposals, changes in the Outside Director selection process, and the selection of a Director Nomination Committee chairperson.
The Mandates, Roles, and Activities of the Director Compensation Committee
The Company establishes as an advisory body to the Board of Directors a Director Compensation Committee to impartially examine through a transparent and objective process proposals and discussions concerning matters such as the compensation system and bylaws for Directors of the Company as well as Directors' individual compensation. The Director Compensation Committee, with a mandate from the Board of Directors, decides the individual compensation of Directors who are not Audit & Supervisory Committee members.
The Committee met 11 times during the period from April 2021 to the June 2022 Ordinary General Meeting of Shareholders. The Committee deliberated on matters including things such as the amount of base compensation and bonuses for each Director, changes to the officer compensation system, changes to the officer compensation decision-making process, selection of the Director Compensation Committee chairperson, compensation of the chairpersons of the Director Nomination Committee and Director Compensation Committee, the performance-based coefficient for stock compensation, and the Company compensation system.
Corporate Strategy Council
The Corporate Strategy Council is an advisory body to the President. It was created to help ensure that the right decisions are made based on the advice and views of executive management. Meetings of the Corporate Strategy Council are held to discuss important matters that affect the entire Epson Group and matters brought up before the Board of Directors. The Corporate Strategy Council is composed of Directors, Executive Officers, and Special Audit & Supervisory Officers.
Nomination of Officers
To ensure transparency and objectivity, Director candidates who are submitted for their appointments to the General Meeting of Shareholders are determined by the Board of Directors after going through a fair, transparent, and rigorous screening and reporting by the Director Nomination Committee, which is chaired by an Outside Director and composed of a majority of Outside Directors.
The policies and procedures for nominating Director candidates and for selecting and dismissing Executive Officers (including the President) and Special Audit & Supervisory Officers are as follows:
- Considering the role that Officers of the Company are required to fulfill and the nomination criteria that Epson has established, Officers must meet the standard requirements of insight, accountability, and ethics. They must also satisfy the selection criteria in 2), depending on their respective roles, and must be able to contribute to an increase in corporate value.
- In addition to the foregoing requirements, Officers of the Company shall satisfy the selection criteria below.
- Non-Executive Director candidates
Oversight capability, management knowledge, professional knowledge
- Executive Director candidates
Oversight capability, foresight/insight, the ability to conceive a vision, decisiveness/courage, the ability to execute and produce results, an inclination to drive change and innovation, the ability to be a unifying force
A candidate for President and Representative Director in particular shall possess the following:
- The ability to face societal issues, construct a vision based on deep insight, and the courage to carry out that vision
- A strong sense of ethics and the ability to humbly accept diverse values, tap the initiative of employees, and be a unifying force that consolidates the power of the entire company
- Executive Officers
Foresight/insight, the ability to conceive a vision, decisiveness/courage, the ability to execute and produce results, an inclination to drive change and innovation, the ability to be a unifying force
- Special Audit & Supervisory Officer
The ability to influence and lead the Company, creativity, the ability to drive change, management ability, the ability to lead a group, management knowledge, professional knowledge
- Non-Executive Director candidates
- Outside Directors must satisfy criteria concerning the independence of Outside Directors in order to guarantee their independence. The Board of Directors established "Criteria for Independence of Outside Directors."
* As a general rule, Outside Directors shall not concurrently serve as either a Director or a Kansayaku of more than three publicly listed companies other than Epson per the bylaws established by resolution of the Board of Directors.
* Per Epson policy, Directors shall attend at least 75% of the meetings of the Board of Directors per year.
Nomination, selection, and dismissal are decided by the Board of Directors after a fair, transparent, and rigorous screening by the Director Nomination Committee, which also presents its opinion. The consent of the Audit & Supervisory Committee is required for nominating Director candidates who are Audit & Supervisory Committee members and for appointing Special Audit & Supervisory Officers.
Criteria for Independence of Outside Directors
The Company has established the criteria below to objectively determine whether potential Outside Directors are independent.
- A person is not independent if:
- The person considers the Company to be a major business partner1, or has served as an executive2 within the past five years in an entity for which the Company is a major business partner;
- The person is a major business partner3 of the Company or has served as an executive within the past five years in an entity that is a major business partner of the Company.
- The person is a business consultant, certified public accountant, or lawyer who has received a large sum of money or other forms of compensation4 (other than remuneration as an officer) from the Company or has, within the past three years, performed duties equivalent to those of an executive as an employee of a corporation or group, such as a union, that has received a large sum of money or other forms of compensation from the Company;
- The person is a major shareholder5 of the Company or has, within the past five years, been an executive or Audit & Supervisory Board Member of an entity that is a major shareholder of the Company;
- The person is an executive or Audit & Supervisory Board Member of an entity in which the Company is currently a major shareholder;
- The person is a major lender6 to the Company or has been an executive of a major lender to the Company within the past five years;
- The person has been employed by an auditing firm that has conducted a legal accounting audit of the Company within the past five years;
- The person has been employed by a leading managing underwriter of the Company within the past five years;
- The person has received a large donation7 from the Company or, within the past three years, has performed duties equivalent to those of an executive as an employee of a corporation or a group, such as a union, that has received a large donation from the Company;
- The person came from an entity that employs someone from the Company as an Outside Director; or
- A spouse or relative within the second degree of kinship of a person having the interests listed in (Ⅰ) through (Ⅸ) above.
- Even if any of the foregoing criteria apply to a potential Outside Director, the Company can elect that person as an Outside Director if that person satisfies the requirements for Outside Directors set forth in the Companies Act, and the Company deems the person suitable as an Outside Director of the Company in light of his or her personality, knowledge, experience, or other qualifications upon explaining and announcing the reasons thereof.
- A person (usually a supplier) considers the Company to be a major business partner if 2% or more of its consolidated net sales (consolidated revenue) has come from the Company in any fiscal year within the past three years.
- "Executive" means an executive officer, executive director or operating officer, or an employee occupying a senior management position of department manager or higher.
- A person (usually a buyer) is a major business partner if 2% or more of the Company's consolidated revenue has come from that partner in any fiscal year within the past three years.
- "A large sum of money or other forms of compensation" means an average annual amount for the past three years that is:
- no less than 10 million yen for an individual; or
- no less than 2% of the annual revenues in any fiscal year for a group.
- "Major shareholder" means a shareholder who directly or indirectly holds 10% or more of the voting rights.
- "A major lender" means a financial institution or other major creditor that is indispensable for the Company's financing and on which the Company depends to the extent that it is irreplaceable in any fiscal year within the past three years.
- "Large donation" means a donation whose annual average amount for the past three years exceeds either:
- 10 million yen or
- 30% of the annual expense of the group, whichever is higher.
Reason for Appointed as Outside Directors, and Attendance at Meetings of the Board of Directors
|Name||Reason for Appointment||Attendance at meetings of the Board of Directors|
|Hideaki Omiya||Mr. Omiya has served as the President and a Chairman of the Board of Mitsubishi Heavy Industries, Ltd. and has considerable experience and insight as a chief executive and engineer.
He has monitored corporate management by expressing opinions actively including findings and proposals regarding overall managerial issues from a perspective of a corporate manager well-versed in the global corporate management in the heavy industry, a different business field.
We have nominated him as a candidate for independent Outside Director with the expectation that he will utilize his wealth of experience and insight to monitor corporate management appropriately in order to achieve sustainable growth and improve the Company's corporate value over the medium and long term.
|13 / 13 meetings
|Mari Matsunaga||Ms. Matsunaga has created new business models and has a wealth of experience and considerable insight through her involvement in the management of multiple companies as an Outside Officer.
She has effectively monitored corporate management by actively speaking out on and proposing solutions to managerial issues. As an Outside Director of the Company, she has appropriately monitored management, actively pointing out business issues and offering recommendations particularly from the viewpoint of promoting open innovation.
We have nominated her as a candidate for independent Outside Director with the expectation that she will utilize her wealth of experience and insight to monitor corporate management appropriately in order to achieve sustainable growth and improve the Company's corporate value over the medium and long term.
|13 / 13 meetings
|Yoshio Shirai||Mr. Shirai has served as Directors at Toyota Motor Corporation, Hino Motors, Ltd. and Toyota Tsusho Corporation.
He has considerable insight, a wealth of experience as a corporate manager, and a track record of achievements as an Outside Director and member of the Company's Audit & Supervisory Committee. We have nominated him as a candidate for Outside Director and Audit & Supervisory Committee member with the expectation that he will appropriately supervise and contribute to the soundness of the Company's management so as to achieve sustainable growth and improve the Company's corporate value over the medium and long-term.
|13 / 13 meetings
|Susumu Murakoshi||Mr. Murakoshi possesses a high level of professional knowledge and insight as an attorney. Given his extensive experience in the legal community, which has included stints as the Chairman of the Japan Federation of Bar Associations and the Chairman of the Political Federation of Japan Patent Attorneys, the Company believes that Mr. Murakoshi can be expected to contribute to the effective supervision and soundness of management so as to help ensure sustained growth and enhance long-term corporate value. Mr. Murakoshi has been appointed as an Outside Director who is an Audit & Supervisory Committee member.||13/ 13 meetings
|Michiko Ohtsuka||Ms. Ohtsuka possesses a high level of professional knowledge and insight as a certified public accountant. Given that she has experience and considerable insight as an Outside Officer in a public company, the Company believes that Ms. Ohtsuka can be expected to contribute to the effective supervision and soundness of management so as to help ensure sustained growth and enhance long-term corporate value. Ms. Ohtsuka has been appointed as an Outside Director who is an Audit & Supervisory Committee member.||13/ 13 meetings
The Company's Director Nomination Committee, which is chaired by an Outside Director and is composed of a majority of Outside Directors, discusses enhancements to succession plans and the Director appointment process, reviews the roadmap, selects Director candidates, establishes and implements development plans, and reviews the process for evaluating, narrowing down, and replacing candidates.
The Company selects candidates for senior management positions in order to systematically develop these individual as future executives. After their development is assessed, the HR Development Strategy Council, an advisory body to the President, devises and implements a concrete development plan. The state of development and issues are reported to the Director Nomination Committee, and development activities are further enhanced under the supervision and advice of the Outside Directors. Candidates to succeed the President are identified through the aforesaid process and developed by appointing them to key management roles and by providing them with other essential training opportunities.
The Company believes that a diverse Board of Directors is useful for facilitating substantive board discussions that cover all angles. Therefore, the Company has a fundamental policy of assembling a Board of Directors that is well balanced and composed of persons who combine a broad spectrum of knowledge, experience, and skill, without regard to things such as gender, race, ethnicity, nationality, cultural background, or age.
The current Board of Directors reflects this policy and has articulated a management organization for realizing the Management Philosophy and corporate vision so as to enable the Company to achieve sustainable growth and improve corporate value over the medium to long term.
The areas and skills where there are particularly high expectations for Directors are as below.
|Title||Name||Areas of expertise and skills particularly expected by the Company|
|Corporate management||Development Design Technology Production||Sales Marketing||IT Digital||Finance Accounting||Legal affairs Compliance||Global (Internationality)|
|Chairman and Director||Minoru Usui|
|President and Representative Director||Yasunori Ogawa|
|Representative Director Senior Managing Executive Officer||Koichi Kubota|
|Director Senior Managing Executive Officer||Tatsuaki Seki|
|Outside Director||Hideaki Omiya|
|Outside Director||Mari Matsunaga|
|Director Full-Time Audit & Supervisory Committee Member||Masayuki Kawana|
|Outside Director Audit & Supervisory Committee Member||Yoshio Shirai|
|Outside Director Audit & Supervisory Committee Member||Susumu Murakoshi|
|Outside Director Audit & Supervisory Committee Member||Michiko Ohtsuka|
* Up to three areas of expertise particularly expected are stated.
* As of June 30, 2022.
Compensation of Officers
Officer compensation is decided by resolution of the general meeting of shareholders and the Board of Directors or the Audit & Supervisory Committee pursuant to the Corporate Governance Policy after a fair, transparent, and rigorous review by the Director Compensation Committee, which is chaired by an Outside Director, composed of a majority of Outside Directors, and issues an opinion, to ensure transparency and objectivity.
To enhance and strengthen corporate governance, the Board of Directors passed a resolution that gives full discretionary authority for deciding the compensation of Directors who are not Audit & Supervisory Committee members to the Director Compensation Committee.
Compensation of Officers Who Have Executive Duties
- Compensation shall provide incentive to improve business performance and shall show a commitment to that in order to sustain growth and increase long-term corporate value.
- Compensation shall be sufficient to attract and retain qualified persons both from within the Company and from outside.
- Compensation shall be commensurate with period performance so that they can demonstrate their management capabilities to the fullest during their tenure.
- Compensation shall show a clear connection between officer compensation and share price and shall strengthen the awareness that their interests are aligned with those of shareholders.
- Compensation shall have a built-in mechanism to control misconduct.
- The process for determining compensation shall be highly transparent, objective, and fair.
Compensation Policies for Officers Who Do Not Have Executive Duties
- The composition of compensation shall guarantee independence so that these Officers can suitably exert their general management supervisory function, etc.
- Compensation shall be sufficient to attract and retain qualified persons both from within the Company and from outside.
The Officer compensation system consists of the following components: base compensation, which is comprised of fixed compensation, bonuses, which are performance-linked compensation, and stock compensation, which is non-monetary compensation. Non-Executive Officers receive base compensation only, a fixed amount, because their role is to supervise general management, etc. They do not receive bonuses and stock compensation.
Base Compensation (fixed and variable)
Base compensation is fixed monetary compensation that is determined in accordance with the individual's position and the size of his or her role and assigned duties. It is paid monthly during their tenure. Base compensation may be raised or lowered by the Board of Directors if warranted by Company performance or for other reasons.
Bonuses are performance-linked monetary compensation paid once a year to Officers who have executive duties, the amounts varying depending on achievement with respect to single-year performance indicators and individual objectives.
In consideration of the nature of bonuses as a short-term incentive, annual Group ROE is used as a performance indicator, with factors such as achievement with respect to individual objectives taken into account. The basic bonus amount is an amount obtained by multiplying the annual total compensation calculated based on position, duties, and so forth by the bonus ratio (25% to 30%) for each position, and the bonus payment amount is calculated by multiplying the basic bonus amount by a coefficient (0% to 200%) according to the achievement with respect to index values such as company-wide ROE targets and a coefficient (± 40%) according to the level of achievement with respect to individual objectives.
The final payment amount is decided at the ordinary general meeting of shareholders to ensure transparency.
Restricted stock compensation (variable)
The Company introduced restricted stock compensation in place of performance-linked stock compensation (officer compensation BIP trust) at the Ordinary General Meeting of Shareholders of June 28, 2022. Restricted stock compensation is stock-based compensation that is designed to further share value with shareholders and provide greater incentive than before to increase the share price, sustain growth, and increase long-term corporate value. It is paid once a year to directors who have executive duties.
Pursuant to the resolution of the Board of Directors, the Company will pay monetary compensation claims up to the annual amount of 200 million yen as compensation, etc., for restricted stock. In turn, eligible Directors will pay all monetary compensation claims provided by the Company as in-kind contributions and will receive an allotment of restricted stock. The aforesaid monetary compensation claims will be paid on condition that eligible Directors have agreed to the aforesaid in-kind contributions and have concluded a restricted stock allotment agreement. The total number of restricted stock shares to be allotted to eligible Directors will not exceed 200,000 shares annually.
Restricted stock allotment agreements shall include provisions on the content below.
- Nature of restrictions on transfer
Eligible Directors shall not transfer, pledge, grant security interests, gift during their lifetime, or bequeath, to any third party, or otherwise dispose of restricted stock (hereafter "Allotted Stock") during the period from the date of allotment to the date on which they resign or retire from their position as either a Director, Executive Officer, or employee of the Company.
- Gratis acquisition of restricted stock
If an eligible Director resigns or retires from his or her position as a Director, Executive Officer or employee of the Company before the end of the period, the Company will rightfully acquire the Allotted Stock without compensation, unless there are extenuating circumstances that the Company's Board of Directors deem reasonable.
- Lifting of the transfer restrictions
The Company will lift transfer restrictions for all Allotted Stock upon the expiration of the transfer restriction period, provided that the eligible Director holds the position of Director, Executive Officer or employee of the Company continuously from the date the transfer restriction period starts to the date of the first Ordinary General Meeting of Shareholders thereafter.
- Malus and clawback provisions
The Company will establish provisions to acquire without contribution some or all of the Allotted Stock granted to eligible Directors or common shares of the Company for which transfer restrictions have been lifted, or to be paid an amount equivalent to the value of the Allotted Stock or common shares of the Company for which transfer restrictions have been lifted, in cases in which the Board of Directors recognizes that eligible Directors have violated laws, regulations, or internal rules, etc. in any material respect during the transfer restriction period or after the lifting of the transfer restrictions, and when certain circumstances determined by the Board of Directors have occurred, including serious accounting irregularities or large losses, etc.
- Treatment in organizational restructuring, etc.
If, during the transfer restriction period, matters concerning organizational restructuring, etc., of the Company are approved at an Ordinary General Meeting of Shareholders, the Company will, by resolution of the Board of Directors, lift the transfer restrictions prior to the effective date of the organizational restructuring, etc., for the number of Allotted Stock that is reasonably determined based on the period from the date the transfer restriction period starts to the date the organizational restructuring, etc., is approved.
The Company plans to also allocate restricted stock like the restricted stock described above to Executive Officers who are not Directors of the Company.
To share the benefits and risks of changes in stock price with general shareholders and to provide eligible Directors with a greater incentive to increase the stock price, sustain growth, and increase long-term corporate value, the Company uses achievement with respect to indicators such as Group ROIC and sustainability targets as indicators.
The base amount of compensation is obtained by multiplying the annual total compensation calculated based on the position, duties, and so forth of each Director by a coefficient (80% to 120% for all) based on achievement with respect to indicators such as stock compensation depending on position (20% to 25%), Group ROIC, and sustainability targets. The base amount of compensation is then divided by the price per share of transfer restricted shares set by the Board of Directors to find the number of Allotted Stock for the period.
The amount of monetary compensation claims to be paid to each Director as compensation, etc., for transfer restricted stock shall be calculated by multiplying the number of shares of Allotted Stock by the closing price of the Company's common stock on the Tokyo Stock Exchange on the business day prior to the date of the resolution of the Board of Directors relating to the issuance or disposal of Allotted Shares.
Performance-linked Compensation (variable)
No additional contribution will be made to the officer compensation BIP in the future, and the intent is for the plan to terminate upon the completion of the delivery and payment pertaining to the points already granted of the Company's common shares and the cash equivalent to an amount obtained through the conversion of the Company's common shares into cash.
Officers who have executive duties are compensated with Seiko Epson shares under a trust scheme. Under this system, the Company contributes money up to 500 million yen in total for each target period, which covers a period of three consecutive fiscal years, to the trust as compensation for officers eligible for this system. During each target period, the trust uses the entrusted money to acquire up to 300,000 shares (in the event of a share split, share consolidation, etc., the said maximum number of shares will fluctuate in proportionate to the ratio of split or consolidation) of the Company's ordinary shares from the stock market or the Company (disposal of treasury shares). Every July during the trust period, basic points are granted based on positions and other factors. The number of points will fluctuate by multiplying the basic points by a performance-based coefficient determined based on the achievement level of the Company's medium- to long-term performance targets (the maximum number of total points per year is 100,000 points, and one point is equivalent to one share). In principle, after the elapse of three years from the date of grant of basic points, approximately 50% of the Company's ordinary shares equivalent to the number of points after multiplying the performance-based coefficient determined based on the achievement level of the Company's medium-term performance targets, which include business profit, ROS, and ROE, are delivered from the trust, and the remainder is paid as money equivalent to the cash value of the Company's ordinary shares for the purpose of appropriating it as funds to pay withholding taxes and other taxes.
The ratio of stock compensation to base compensation increases or decreases from 10% to 22% depending on position, while the number of shares delivered is linked to the achievement level of the performance indicators during the target period (3 years).
The Company has introduced provisions (malus and clawback provisions) under this stock compensation system that will cause Officers to lose their right to receive stock and require them to pay back an amount equal to the value of the stock already issued if they are found to have violated any laws, ordinances, or company regulations, standards, or other policies.
The Company has selected quantitative evaluations (business profit, ROS, ROE, cash flows from operating activities) as well as qualitative evaluations as indicators, so that the performance-linked compensation based on performance indicators can provide appropriate incentives to Directors and for the purpose of showing its commitment to promoting sustainable growth and increasing its medium to long-term corporate value. The Director Compensation Committee qualitatively evaluates performance based on progress against the previous Mid-Range Business Plan financial targets, the effects of currency volatility, progress in ESG management (environment assessment, CSR survey ranking and evaluation of the effectiveness of the Board of Directors), etc.
Compensation to Directors (FY2021)
(Millions of yen)
|Category||Number of individuals (Persons)||Base compensation||Performance-linked compensation||Total|
|Fixed (monetary)||Variable (monetary)||Bonuses (monetary)||Stock compensation (non-monetary)|
|Directors who are not Audit & Supervisory Committee members
(of which, Outside Directors)
|Directors who are Audit & Supervisory Committee members
(of which, Outside Directors)
- The Company has introduced an officers' shareholding association system to link compensation more closely to shareholders' value. A portion of the base compensation is discretionally allotted for the acquisition of the Company's shares. The Company has established the criteria for shareholding by its officers based on internal regulations defined by the Board of Directors to demonstrate its commitment to and responsibilities for the management to all shareholders.
- The amount above includes bonuses to be paid to Directors in the amount of 64 million yen (amount to be paid to three Directors excluding Chairman and Director without the right of representation, Outside Directors, and Directors who are Audit & Supervisory Committee Members), subject to the approval of the proposal concerning the payment of bonus to Directors to be proposed at the Ordinary General Meeting of Shareholders scheduled on June 28, 2022.
- The Company introduced a performance-linked stock compensation plan (stock compensation) by employing a framework referred to as the officer compensation BIP (Board Incentive Plan) trust, for the purpose of showing its commitment to promoting sustainable growth and increasing its medium to long-term corporate value, in addition to strengthening the sense of sharing common interests with its shareholders. No additional contribution will be made to the officer compensation BIP in the future, and the intent is for the plan to terminate upon the completion of the delivery and payment pertaining to the points already granted of the Company's common shares and the cash equivalent to an amount obtained through the conversion of the Company's common shares into cash. The stock compensation stated above represents the amount recorded based on Japanese Generally Accepted Accounting Principles (JGAAP) concerning the stock delivery points granted in the current fiscal year.
- The number of individuals above includes two Directors who are not Audit & Supervisory Committee Members, one Director who is an Audit & Supervisory Committee Member who retired at the conclusion of the Ordinary General Meeting of Shareholders held on June 25, 2021, and one Director who is not an Audit & Supervisory Committee Member who retired on January 31, 2022.
- Stock options are not granted
Actions to Ensure Board Effectiveness
The Board of Directors of the Company analyzes and evaluates the effectiveness of the entire Board of Directors every year based on Article 28 of the Corporate Governance Policy.
Evaluating the effectiveness of the Board of Directors (general principles)
When evaluation is performed: February to March
When evaluation results are analyzed and issues are selected: April to May
Disclosure of issues in a Corporate Governance Report: June
Interim report to the Board of Directors (regarding actions taken to resolve issues): October
Final report to the Board of Directors (regarding action take to resolve issues): February of the following year
Disclosure in a Corporate Governance Report of the results of actions taken to resolve issues: June of the following year
FY2020 Evaluation Results
The results of actions taken to address issues that were raised when the effectiveness of the Board of Directors was evaluated for the 2020 fiscal year are provided below. The effectiveness of the Board of Directors in the 2020 fiscal year was evaluated by having all Board members complete a questionnaire. The questionnaire results showed that the Board of Directors is functioning effectively.
(1) Promoting diversity initiatives
The Board conducted numerical improvement simulations up to the goal of promoting women in the workplace and revised the targets leading to the goal. Issues in the Company were found to fall under the categories of unconscious bias, long working hours, insufficient growth opportunities, and a small number of women in the workforce. The Board focused its efforts on resolving these issues, regularly discussing them at the Board meetings during the 2021 fiscal year. The direction in which to steer actions to promote the participation and advancement of women was thus clarified, an owner was appointed from each operations division and division, and activities commenced in each organization. The Board will continue to collaborate with the operations divisions and divisions to promote the participation and advancement of women in the workplace primarily through a special project team called the Diversity and Inclusion Project.
Moving forward, the Board will also advance other diversity-related initiatives to hire foreign nationals and mid-career workers and to hire more persons with disabilities. For details, see "Promotion of Diversity" at our website. (https://global.epson.com/en/sustainability/our-people/diversity/)
(2) Promoting DX initiatives
The Board of Directors formulated, planned, and drove DX strategy to achieve the DX initiatives in Epson 25 Renewed (initiatives to contribute to customer success by building a robust digital platform, connecting people, things, and information, and co-creating solutions that continue to meet customer needs). They examined issues in the Company, organized the degree of evolution of DX from a customer perspective and an employee perspective, and have been improving the infrastructure.
Moving forward, they will address the priority issue of capturing the necessary DX and IT talent. Time is regularly set aside at Board meetings to discuss DX, and the Board has discussed the direction and method of promoting DX, but given that DX forms the core of the Epson 25 Renewed corporate vision and that work in this area needs to be further strengthened, the Board decided to pursue the actions described in 3. below as one of the issues in Board effectiveness evaluations.
FY2021 Evaluation Results
(1) Composition, functioning, and operation of the Board of Directors
(2) Functions of the Audit & Supervisory Committee
(3) Functions and operations of advisory bodies to the Board
(4) Evaluation, compensation, succession planning, and training of the management team
(5) Dialogue with shareholders
The results of the evaluation showed that the Board of Directors as a whole is functioning effectively. However, given recent trends in corporate governance and the results of the 2020 fiscal year effectiveness evaluation of the Board, the Board identified the following issues in order to improve effectiveness in the future.
(1) Set aside more opportunities to discuss progress and issues related to the environment, DX, and co-creation to accelerate the realization of Epson 25 Renewed.
(2) Deepen discussions on succession plans and training of the management team and drive further improvement.
An evaluation by a third-party organization was not conducted because it is the Company's policy to implement them once every three years. In the future, we will work to further improve effectiveness by addressing these issues.
Responding to Large-Scale Acquisitions of Seiko Epson Shares
Epson's Corporate Governance Policy stipulates the following:
- Whether to accept a bid to purchase a number of shares that would give the acquirer control over the Company's financial and business policies ("large-scale acquisition" hereafter) should ultimately be decided by the shareholders.
- Epson shall ask persons who attempt to make large-scale acquisitions of Company shares to provide a sufficient amount of the information needed to determine the desirability of the large-scale acquisition from the perspective of ensuring and enhancing corporate value and the common interests of shareholders, after which Epson shall disclose the opinions of the Company's Board of Directors regarding the proposed large-scale acquisition, thereby doing its due diligence to provide shareholders with the time and information they need to consider the desirability of the large-scale acquisition. The Company shall also take appropriate actions based on the Financial Instruments and Exchange Act, the Companies Act, and other applicable laws and regulations.