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  • April 2016
  • METI Compiled a Report Titled “Guidebook for Introducing New Stock-based Compensation (“Restricted Stock”) as Board Members’ Compensation to Encourage Companies to Promote Proactive Business Management”

METI Compiled a Report Titled “Guidebook for Introducing New Stock-based Compensation (“Restricted Stock”) as Board Members’ Compensation to Encourage Companies to Promote Proactive Business Management”

The Ministry of Economy, Trade and Industry (METI) has been engaging in the enhancement of corporate governance aiming to improve the profitability, earning power, and mid to long term corporate value of Japanese companies.

As a part of the effort, METI has compiled a report titled “Guidebook for Introducing New Stock-based Compensation (“Restricted Stock”) as Board Members’ Compensation to Encourage Companies to Promote Proactive Business Management,” aiming to facilitate companies’ introduction of incentive-based compensation for board members.

1. Background

Promoting the introduction into companies of new compensation systems for board members of companies, e.g., stock-based or performance-based compensation, is an important element for providing appropriate incentives to improve corporate value over the mid to long term.

Against the backdrop of this situation, on July 24, 2015, METI streamlined measures in terms of the Companies Act for introducing new stock-based compensation into companies, based on a report titled “Implementation of Corporate Governance—Incentives and Reforms toward an Increase in Corporate Value,” which was compiled by the Corporate Governance System Study Group.

In addition, the FY2016 Tax System Reform provides measures for developing a tax system involving expenses and other compensation of board members to encourage companies to promote proactive management through: [i] development of a system under which stock-based compensation (“restricted stock”) given to board members will be covered by the scope of the final compensation concerning which companies need not notify the authorities in advance, and [ii] clarification of the scope of the index through which performance-based compensation is calculated.

2. Outline of the guidebook

  1. Outline of board member compensation to encourage proactive business management
    The guidebook explains the policy significance for promoting the introduction into companies of an incentive-based compensation system for board members, the streamlined measures in terms of the Companies Act for giving stock-based compensation to board members, and an outline of special arrangements under the FY2016 Tax System Reform.
  2. Q&A concerning the introduction into companies of a new stock-based or performance-based compensation system in light of the FY2016 Tax System Reform
    The guidebook provides a Q&A section to explain key points of the tax system reform concerning introducing into companies certain shares with restriction on transfer under tax regulations (hereinafter referred to as “specific transfer-restricted shares”) and performance-based compensation.
  3. Example of a transfer-restricted share grant agreement
    The guidebook gives an example of an agreement concluded between a company and board members concerning grant agreements for transfer-restricted shares.
  4. Example of a bill on compensation proposed to a shareholder meeting
    The guidebook gives an example of a bill on compensation for board members proposed at a shareholder meeting.
  5. Related laws and regulations
    The guidebook also describes the provision of acts, cabinet orders, and ordinances related to this governance system under the Corporation Tax Act and the Income Tax Act.

For details, see the Japanese language news release.

Release date

April 28, 2016

Division in Charge

Corporate System Division, Economic and Industrial Policy Bureau

Related Information

Ministry of Economy, Trade and Industry1-3-1 Kasumigaseki, Chiyoda-ku, Tokyo 100-8901, Japan Tel: +81-(0)3-3501-1511
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