Highlights from the 2024 analysis
In an annual analysis on CEO pay in Japan, the U.S., and Europe, based on publicly available data from over 500 companies in Japan, France, Germany, the U.K., and the U.S., found that Japanese pay is on the rise but still lags behind its Western counterparts in various aspects of executive pay.
The key findings include:
While median total CEO compensation in Japan increased from JPY 271 million to JPY 277 million year-over-year, the study highlights the significant gap between Japanese companies and Western markets (Figure 1).
This differential is particularly evident when comparing the quantum and weighting of variable compensation elements (Figure 2 – scroll right to see percentages).
In parallel, when considering median capital return of each market (Figure 3), performance mirrors the global trend in compensation levels, whereby the U.S. has the strongest ROE at median, followed by Europe (median ROE averaged across U.K., Germany and France) and finally Japan following behind Western markets.
Even amongst the Western markets, CEO pay in the U.S. exceeds the European market by a strong margin owing mainly to U.S. companies placing a focus on long-term incentives within executive pay mixes. When considering the relationship between pay and performance, the focus placed on variable compensation elements to expand realizable pay may be a key driver behind higher corporate value and performance observed among U.S. companies.
| 2024 ROE (Median Values) | |
|---|---|
| U.S. | 16.64% |
| EU (average) | 11.35% |
| U.K. | 11.63% |
| Germany | 9.51% |
| France | 12.90% |
| Japan | 9.85% |
Within the Japanese market, companies that report the highest levels of compensation typically have a significant portion of pay tied to variable pay elements. At median CEO pay of JPY 277 million, pay mix is approximately 1:1:1 (base to annual incentive to long-term incentive). However, amongst the top 10% of companies (90%ile of CEO pay in Japan = JPY 760 million), incentives are used more aggressively with pay mix of approximately 1:2:4 (Figure 4).
If pay levels and corporate performance are inherently linked, Japanese companies may be able to achieve growth through the expansion of variable compensation within pay mixes and thereby further increase realizable pay. This would also demonstrate the intent of a company to achieve sustainable and long-term improvements in corporate value to external stakeholders, encourage executives to take concrete actions toward improved performance and would also be beneficial for attracting global talent to Japan.
But if Japanese companies want to go down this route of increasing pay with a view to improve corporate value and becoming competitive with Western markets, it’s critical to secure the support of internal and external stakeholders, and to ensure that performance and pay governance meet market best practice. This would include setting sufficiently challenging goals for incentive plans, implementation of malus/clawback provisions, mechanisms to promote long-term stockholding by executives and ensuring the effectiveness of the compensation committee.
The report "CEO Pay Landscape in Japan, the U.S., and Europe - 2024 Analysis," was compiled by the WTW Global Executive Compensation Analysis team using public disclosures. Details of the analysis and basis of representation are as follows:
