Are earnings low for top management in Japanese companies?

January 17, 2017 [No.35-2016]

Dr. Hiroyuki FUJIMURA
Hosei University


The CEO of Toyota Motor, Mr. Akio Toyoda earned 3.2 million U.S. dollars in 2015. That year, Toyota Motor made a profit of 20.6 billion U.S. dollars. In 2015, General Motors (GM) in the U.S. made a profit of 9.7 billion U.S. dollars and its CEO, Ms. Mary Barra, earned 7.3 million U.S. dollars. Including stock options, private pension, and other compensation, it is said that Ms. Mary Barra earned 28.6 million U.S. dollars.


Until several years ago, the earnings of top management in Japan was not made public, but since the March 2010 settlement term, it was made compulsory to state any annual earnings over one hundred million yen in the annual securities report. As a result, Japan has finally become able to have discussions based on the data of top management earnings.


It is said that the earnings of top management in Japan are low compared to CEOs in the U.S. or European countries. As mentioned at the beginning, the fact that the CEO of Toyota, a company with over twice the profit of GM, earns less than half of the President of GM is just one example. Can such earnings be described as rational?


As stated in the last article, “Japan’s labor union,” it is general practice for top management in Japan to be promoted from ordinal employees. Employees have the sense that CEO is their representative. Therefore, if the CEO’s earnings are significantly higher than employees’ salaries, it would be unacceptable. Generally, CEOs in Japanese companies earn an average of about 10 times that of their employees.


However, when discussing the earnings of CEO, there is another point that must be considered. That is the situation after retirement. If a CEO secures a certain amount of achievements during office, he or she becomes vice-chairman. Then, that person can go on to positions, such as chairman, consultant, or advisor. The duration may differ depending on the company or person, but may be as long as over 20 years. During this period, compensation is being paid, which totals to a considerable amount in terms of lifetime earnings.
When discussing the earnings of top management of Japanese companies, it can be said that it is necessary to consider what happens after retirement of CEO.


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