Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Unlike the transfer of personnel rights, which is resisted by management, equity compensation that can be used to retain talent is attractive to management and is likely to accelerate.</li>
<li>If equity compensation plans are introduced for employees with a low ratio of female managers, the gap in compensation between men and women is expected to widen.</li>
<li>The introduction of equity compensation for employees is anticipated to provide an opportunity for management “kaizen” tips to emerge from individual workplaces.</li>
</ul>


Unlike the transfer of personnel rights, which is resisted by management, equity compensation that can be used to retain talent is attractive to management and is likely to accelerate.
If equity compensation plans are introduced for employees with a low ratio of female managers, the gap in compensation between men and women is expected to widen.
The introduction of equity compensation for employees is anticipated to provide an opportunity for management “kaizen” tips to emerge from individual workplaces.


If Equity Compensation Are Introduced for Employees as Is, the Gender Gap in Compensation Widens

<ul>
<li>A year after human capital disclosure became mandatory, little progress was made, but few companies, even those in top 100 in market capitalization, have self-assessed their milestones and actual progress.</li>
<li>While it was favored that companies with higher scores on human capital disclosure outperformed in stock price, it is reasonable to assume that multiple other factors had an impact. </li>
<li>Some companies formulated growth strategies by presenting clear cash/capital allocations and have actually achieved improved capital profitability. Human capital initiatives can be viewed as part of such autonomous “kaizen” activities.</li>
</ul>


A year after human capital disclosure became mandatory, little progress was made, but few companies, even those in top 100 in market capitalization, have self-assessed their milestones and actual progress.
While it was favored that companies with higher scores on human capital disclosure outperformed in stock price, it is reasonable to assume that multiple other factors had an impact. 
Some companies formulated growth strategies by presenting clear cash/capital allocations and have actually achieved improved capital profitability. Human capital initiatives can be viewed as part of such autonomous “kaizen” activities.


Human Capital Initiatives Can Also Be Viewed as Part of Such Autonomous “kaizen” Activities

<ul>
<li>Outside director compensation is increasing, but there is a considerable difference in compensation for outside directors between large and small companies and between small and medium-sized publicly traded companies.</li>
<li>Every time a scandal occurs, there is a lack of shareholder-oriented management and a smattering of outside board members who turn a blind eye to the scandal.</li>
<li>A compensation model that includes equity compensation should be created to maximize the power of outside directors, with “management from the perspective of shareholders” as a necessary condition.</li>
</ul>


Outside director compensation is increasing, but there is a considerable difference in compensation for outside directors between large and small companies and between small and medium-sized publicly traded companies.
Every time a scandal occurs, there is a lack of shareholder-oriented management and a smattering of outside board members who turn a blind eye to the scandal.
A compensation model that includes equity compensation should be created to maximize the power of outside directors, with “management from the perspective of shareholders” as a necessary condition.


A Compensation Model Should Be Created to Maximize Outside Directors' Abilities as Necessary Talents

<ul>
<li>The number of days to disclose first- and third-quarter financial results was 37.0 days, roughly the same timing as the previous year, regardless of whether reviews were conducted or not.</li>
<li>The larger market capitalization companies are more likely to conduct voluntary reviews, and the larger market capitalization companies are more positive about ensuring the reliability of their disclosure information.</li>
<li>Despite a slight increase from the previous year, only a little more than 10% of all companies disclosed cash flow statements in the first and third quarters.</li>
</ul>


The number of days to disclose first- and third-quarter financial results was 37.0 days, roughly the same timing as the previous year, regardless of whether reviews were conducted or not.
The larger market capitalization companies are more likely to conduct voluntary reviews, and the larger market capitalization companies are more positive about ensuring the reliability of their disclosure information.
Despite a slight increase from the previous year, only a little more than 10% of all companies disclosed cash flow statements in the first and third quarters.


No Disruption in Quarterly Disclosure Review, but a Few Companies Disclosed CF Statements in 1Q & 3Q

<ul>
<li>It's understandable that compensation is paid for managing a global business and achieving significant growth, but it's also paid for bloated performance in yen terms due to the weak yen.</li>
<li>Employee engagement is very important for value-added products and more money should be spent on human capital. Otherwise, higher profit margins are unlikely to be achieved.</li>
<li>The election of directors at AGMs rarely results in rejection of the company's proposal. Cross-shareholdings should be reduced so that managers whose “employment” is protected by cross-shareholdings don't receive commensurate compensation.</li>
</ul>


It's understandable that compensation is paid for managing a global business and achieving significant growth, but it's also paid for bloated performance in yen terms due to the weak yen.
Employee engagement is very important for value-added products and more money should be spent on human capital. Otherwise, higher profit margins are unlikely to be achieved.
The election of directors at AGMs rarely results in rejection of the company's proposal. Cross-shareholdings should be reduced so that managers whose “employment” is protected by cross-shareholdings don't receive commensurate compensation.


Fair for Managers Who Are Protected by Cross-Shareholding and Get Inflated Payout Due to Weak Yen?

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

If Equity Compensation Are Introduced for Employees as Is, the Gender Gap in Compensation Widens

I would like to discuss the issues on the September 9 article, “Employees Participate in Management through Stock Compensation in 30% of Listed...

Metrical Inc

Human Capital Initiatives Can Also Be Viewed as Part of Such Autonomous “kaizen” Activities

I would like to discuss the September 12 Nikkei article, “Human Capital ‘Measurement’ Reform: Two Years of Mandatory Disclosure and Independent...

Metrical Inc

A Compensation Model Should Be Created to Maximize Outside Directors' Abilities as Necessary Talents

I would like to discuss the issues on the September 4 Nikkei Newspaper article, “Outside Directors of Listed Companies Receive 17.2 Million Yen in...

Metrical Inc

No Disruption in Quarterly Disclosure Review, but a Few Companies Disclosed CF Statements in 1Q & 3Q

I would like to discuss the issues on disclosure by TSE on September 5, “Disclosure Trends of Quarterly Financial Statements after the Revision of...

Metrical Inc

Fair for Managers Who Are Protected by Cross-Shareholding and Get Inflated Payout Due to Weak Yen?

I would like to discuss the issues of the August 6 article, “Top Management Compensation at Japanese Companies Highest in Three Consecutive Years,...

Metrical Inc