Supplementary Explanation

At the 74th Ordinary General Meeting of Shareholders held on June 28, 2022, a resolution was passed to abolish the previous remuneration-type stock option remuneration framework and introduce a “Board Benefit Trust (BBT),” a new performance-linked and share-based remuneration plan, for Directors and Executive Officers of the Company and some of the Directors of eligible subsidiaries, for the purpose of enhancing the medium- to long-term corporate value of the Company, improving the motivation and morale of Directors to contribute, and to align their interests with shareholders in the value of the Company’s shares. For details of the performance-linked and share-based remuneration plan “Board Benefit Trust (BBT),” please refer to [Director Remuneration] “Disclosure of Policy for Determining Remuneration Amounts or Calculation Methods Thereof” in Section II. 1. of this report.
For the remuneration-type stock options that were in place until June 2022, no new stock acquisition rights will be granted as remuneration-type stock options going forward. However, regardless of the abolishment of said remuneration framework, of the stock acquisition rights granted as remuneration-type stock options to Directors (excluding Outside Directors), Executive Officers and some employees, as well as to certain Directors of the Company’s subsidiaries as compensation for the execution of their duties prior to June 2022, any unexercised stock acquisition rights shall remain exercisable.

Supplementary Explanation

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Supplementary Explanation

The total amounts by type of remuneration for each classification of Directors, Audit & Supervisory Board Members, and Outside Directors and Outside Audit & Supervisory Board Members are reported in annual securities report.

Disclosure of Policy for Determining Remuneration Amounts or Calculation Methods Thereof

(1) Details and decision-making procedure of policy on determining the amount of remuneration, etc. for Directors and Audit & Supervisory Board Members and calculation method thereof

The Company provides policy on determining the amount of remuneration, etc. for Directors and Audit & Supervisory Board Members and calculation method thereof. Remuneration for Directors consists of the “basic remuneration” paid according to position and role importance of the Directors as well as corporate performance and individual performance and the “performance-linked and share-based remuneration” for the purpose of enhancing the medium- to long-term corporate value, improving the motivation and morale of Directors to contribute, and aligning their interests with shareholders regarding the value of the Company’s shares. “Basic remuneration,” paid monthly in cash, consists of a fixed portion based on the position and role of the Director and a performance-linked portion that is linked to the Company’s business performance and the degree of individual performance. For the “performance-linked and share-based remuneration,” a number of shares linked to performance is calculated every three fiscal years, the aggregate of which is to be provided at the time of retirement or death. Furthermore, in consideration of the characteristics of the duties of Outside Directors and of the auditing operations of the Audit & Supervisory Board members, the performance-based element has been excluded from remuneration, and they are paid only the fixed portion of “basic remuneration.”
The Company has formulated the Determination Standard for Director Remunerations as the policy to determine the details of the remuneration, etc. for each Director that provides the composition of remuneration, etc., the level of remuneration for each position and role, selection of performance indicators and the method of reflecting such indicators in the remuneration, etc. The Determination Standard for Director Remunerations was formulated aiming at increasing the Company’s medium- to long-term corporate value, boosting Director morale and the desire to contribute to improving the Company’s business performance. All such contents are deliberated by the Management Advisory Committee that serves as an advisory body to the Board of Directors, the majority of which is comprised of Independent Outside Directors. With the consent of the “Management Advisory Committee,” the details are determined through a resolution by the Board of Directors.
Through a resolution by the Board of Directors, the Company is delegating the determination of part of the contents of the remuneration, etc. for each Director to President & Representative Director, CEO, Koki Ando. The authority is delegated to determine the contents of the basic remuneration for each Director in accordance with the Determination Standard for Director Remunerations, within the limit of the remuneration for Directors (basic remuneration) that is adopted by a resolution of the General Meeting of Shareholders. When the authority is exercised it is exercised in accordance with the Determination Standard for Director Remunerations which has been deliberated and consented by the Management Advisory Committee, ensuring appropriate exercise of such authority. The Company deems that it is best to delegate individual Directors’ evaluations, from the standpoint of the degree of contribution to company-wide businesses and business performance, to the Representative Director.
The levels of remuneration have been decided referencing statistical levels of a group of benchmark companies of the same scale and industry and after an evaluation of the validity of the levels by the Management Advisory Committee. The composition ratio of performance-linked and share-based remuneration based on the new system to total remuneration has also been set based on trends in a group of benchmark companies of the same scale and industry. The ratio of basic remuneration to performance-linked and share-based remuneration, after the transition to the new system, is designed to fall within the range of approximately 80-87% for basic remuneration and approximately 13-20% for performance-linked and share-based remuneration.
The “basic remuneration,” provided monthly, consists of a fixed portion based on the position and the role of the Director and a performance-linked portion that is linked to the Company’s business performance and the degree of individual performance. The performance-linked portion is designed to vary within the range of up to 20% of the base amount depending on the actual results of “consolidated performance indicators” of the Company and also within the same range for the results of “individual performance evaluation,” within the range of up to 40% both indicators combined, and will be reflected in the performance-linked portion of the “basic remuneration” for the following fiscal year.
From the standpoint of simplicity and in the interest of contributing to increased short-term revenue, the consolidated performance indicators use the degrees of achievement toward plans for “revenue,” representing the earning power of core businesses among the Company’s overall performance, and “profit attributable to owners of the parent” signifying the ultimate responsibility to shareholders.
To evaluate individual performance, based on a belief that the individual performance accomplished through business execution is tied to the business performance of the Company, the Company clarifies the individual responsibility and contribution, and evaluates the degree of accomplishment towards the plans and year-on-year variance.
The “performance-linked and share-based remuneration,” by linking Directors’ remuneration to the Company’s stock price and sharing interest with shareholders, aims to increase the Company’s medium- to long-term corporate value and boost Director morale and the desire to contribute to improved results. In the share-based remuneration system, based on the Share Delivery Regulations for Officers, each Director is granted Provisional Points based on their position, and for every performance measurement period of three fiscal years, the number of points is adjusted using a performance coefficient decided based on the achievement ratio of consolidated performance indicators during the period in question, to be granted as Confirmed Points. Then, when the Director in question retires or dies, a number of the Company’s shares acquired through the Trust, based on the number of Confirmed Points, will be delivered. However, where conditions stipulated in the Share Delivery Regulations for Officers are met, for a certain portion of the Company’s shares to be granted, cash corresponding to the market price of the Company’s shares may be granted instead.
The calculation method for points and the consolidated performance indicators that form the basis of the performance coefficient are as follows:

A. Calculation method for points

Points granted in each performance measurement period = Cumulative provisional points over three fiscal years × Performance coefficient
Where there are changes to the position of an eligible party during their term as Director, the number of provisional points granted is determined by dividing the number of provisional points based on each position by twelve and then multiplying each by the number of months that the Director held that position.
Where an eligible party retires from their position as Director during their term, a number of provisional points will be granted in proportion to the length of their term.

B. Consolidated performance indicators

For indicators linked to consolidated performance, from the standpoint of facilitating medium- to long-term growth and shared interests with shareholders, the Company is using the three-year average of multiple indicators chosen by the Management Advisory Committee out of indicators such as “core operating profit growth rate for existing businesses” and “relative TSR” for their appropriateness in light of the intent of the share-based remuneration system. In the three-year performance measurement period starting in FY2022, the three-year average core operating profit growth rate for existing businesses and the three-year relative TSR have been used as the basis of evaluation, with each carrying a 50% evaluation weight.
The maximum amount of remuneration for Directors and Audit & Supervisory Board Members (basic remuneration) that was adopted by resolution of the General Meeting of Shareholders (not including employee equivalent salaries paid to Director who is also an employee) is not more than ¥700 million per year (of which ¥100 million or less for Outside Director; adopted by resolution of the 68th Ordinary General Meeting of Shareholders held on June 28, 2016) for Director, and not more than ¥60 million per year for Audit & Supervisory Board Member (adopted by resolution of the 47th Ordinary General Meeting of Shareholders held on June 29, 1995). The maximum amount of the performance-linked and share-based remuneration plan for Directors (Outside Directors are not eligible for payment) is ¥1,860 million (of which ¥930 million is for the Company’s Directors) per fiscal year, in principle, as funds to acquire shares corresponding to each performance measurement period starting every fiscal year (resolved at the 74th Ordinary General Meeting of Shareholders held on June 28, 2022).

(2) Organization and procedures for determining remuneration, etc. for Directors in the fiscal year under review

A resolution was passed at a meeting of the Board of Directors to delegate the determination of the specific contents of the basic remuneration for each Director for the fiscal year ended March 31, 2022 under review to President & Representative Director, CEO, Koki Ando. The authority is delegated to determine the contents of the basic remuneration for each Director in accordance with the Determination Standard for Director Remunerations, within the limit of the remuneration for Directors (basic remuneration) that is adopted by the resolution of the General Meeting of Shareholders. The Company judges that it is best to delegate individual Directors’ evaluation to be performed by the Representative Director from the viewpoint of the degree of contribution to businesses and business performance of the Company across the board. The Board of Directors has resolved that the Management Advisory Committee shall deliberate on the contents of the Determination Standard for Director Remunerations to ensure that this delegated authority is properly exercised, and President & Representative Director shall determine the contents of the basic remuneration for each Director in accordance with the Determination Standard for Director Remunerations approved by the Management Advisory Committee.