Remuneration to Directors and Audit & Supervisory Board Members

The total (maximum) amounts of remuneration paid to directors as well as Audit & Supervisory Board members are determined by way of resolution at the Company’s annual General Meeting of Shareholders. The Company also discloses the number of officers receiving remuneration and the total amount of remuneration by director as well as by Audit & Supervisory Board member.

Remuneration for directors is paid as a total amount including corporate vice president remuneration, and it is determined by the resolution of the BoD in accordance with the structure of the remuneration and evaluation system discussed at the Nomination and Remuneration Advisory Committee. The remuneration to be paid consists of fixed remuneration, which is determined according to position and responsibilities, of performance-linked remuneration, which changes according to business performance, and of Restricted Share-Based Remuneration Plan.

At the 125th Ordinary General Meeting of Shareholders held on June 29, 2021, the Company introduced a new share-based remuneration plan to replace its existing stock option system. This has the purpose of encouraging the Company’s directors, excluding outside directors (hereinafter, “Eligible Directors”), to share the interests of stock price fluctuations with our shareholders and to further enhance their motivation to contribute to improving the Company’s value and the operating performance over the medium and long term.

The share-based remuneration plan is comprised of two plans: one to grant shares of the Company’s common stock subject to provisions, including those concerning a certain restriction period and those concerning justifiable reasons for the Company to acquire the shares without contribution, etc., from the Company to Eligible Directors (hereinafter, the “Restricted Share-Based Remuneration Plan”), and one to grant shares of the Company’s common stock or pay cash according to the level of achievement of medium-term numerical targets such as the Company’s performance set in advance by the Company’s BoD as medium-term performance-linked share-based remuneration (hereinafter, the “Performance Share Unit Plan”).

Allocation ratios for fixed remuneration, short-term performance-linked remuneration and share-based remuneration shall be (all figures approximate): 55% for fixed remuneration, 15% for performance-linked remuneration (of which 10% is short-term performancelinked, and 5% is Performance Share Units), and 30% for the Restricted Share-Based Remuneration Plan. These ratios shall be applied to the total amount of consolidated remuneration, etc., including the amount of employee portion of bonuses and remuneration for directors who concurrently serve as employees and the amount booked for share-based remuneration expenses. These shall be determined based on each director’s position and other such factors. Note that these ratios are therefore subject to vary depending on our evaluation of business performance and changes in our stock value.

The Company will issue or dispose of restricted shares by granting monetary remuneration receivables to the Eligible Directors for the purpose of allotting restricted shares, in principle, every fiscal year, and have the Eligible Directors hold these shares by having them contribute all of these monetary remuneration receivables in kind. The aforementioned monetary remuneration receivables shall be paid on the condition that the Eligible Directors agree to said contribution in kind and that the Company and the Eligible Directors have concluded an allotment agreement for transfer restricted shares.

In this plan, in order to enhance the motivation of Eligible Directors toward sustainable growth in corporate value over the medium to long term and to further encourage management from the shareholder’s perspective, the Company imposes share transfer restrictions from the day the allotment was received until the day on which the Eligible Director loses the position of director, Audit & Supervisory Board member, corporate vice president, fellow, etc., or employee of the Company or its consolidated subsidiary.

In this performance-linked share-based remuneration plan, the Company will deliver shares of its common stock or pay cash to Eligible Directors after the three fiscal years spanning the medium-term management plan. When making such deliveries and payments, the figures set in advance by the BoD corresponding to each Eligible Director’s title, etc., shall be the base, with adjustments made in a range of 0% to 150% according to the level of achievement of indicators in the Company’s medium-term management plan, such as consolidated revenue, consolidated operating income and return on invested capital (ROIC), ESG indicator, etc., and the number of the Company’s shares of common stock equating to 50% of that adjusted number and the cash equivalent of the stock price of the same number of the Company’s shares of common stock at time of delivery shall be delivered or paid. The initial eligible period is from April 1, 2021 to March 31, 2024, and thereafter, the Performance Share Unit Plan may be implemented for the three consecutive fiscal years beginning with the fiscal year following the final fiscal year of the preceding eligible period.

The purpose of this plan is for Eligible Directors to share the benefits and risks of stock price fluctuations with shareholders, and to motivate them toward increasing our stock price, enhancing corporate value and improving business performance over the medium term.

For short-term performance-linked remuneration, “consolidated revenue” and “consolidated operating income,” which are the numerical targets for the Company’s shortterm business management, are selected as performancelinked indicators in a single fiscal year, and the amount of short-term performance-linked remuneration is changed based on the achievement level of the indicators and the comparison with the previous fiscal year’s results.

The remuneration for outside directors consists of only fixed remuneration in consideration of their role and independence.

The remuneration for Audit & Supervisory Board members consists of only fixed remuneration in consideration of their role and independence, and the amount of remuneration paid to each Audit & Supervisory Board member is determined based on deliberations among Audit & Supervisory Board members.

• *1 The amount of remuneration for "Performance share units" and "Restricted share-based remuneration" is the amount recorded in the income statement for the portion corresponding to the period in fiscal 2022.
• *2 The number of Directors who received remuneration includes two Directors who retired during fiscal 2022.
• *3 The above amounts include remuneration paid to directors who also hold employee posts as consideration for the fulfillment of their employee duties.