| BUSINESSWEEK ONLINE : APRIL 19, 1999 ISSUE | ||||||||
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| COVER STORY
The Stock-Option Option Comes to Japan (int'l edition) A decade ago, Japan's relatively flat executive pay regime was viewed as a crucial competitive advantage. Japanese bosses decried the high-octane pay deals, flush with stock options, of their U.S. counterparts as emblematic of the short-term mentality that put quarterly earnings and share prices ahead of long-term strategic planning. By contrast, they argued, their more egalitarian pay structure, in exchange for lifetime job security, was positively enlightened. Well, no more. Suddenly, a dash of pay inequality is an idea who's time has come. With corporate profits plunging for the fourth year running, by 20% in the latest year, Japanese compensation strategies are getting a rethink. Some 160 listed companies, including Sony, nec, and Sega Enterprises, now offer executives stock options, says a study by Towers Perrin Foster & Crosby Inc. MODEST BEGINNINGS. Electronics giant Sony is a leader. As of August it had issued about $21 million worth of stock options with exercise rights extending to around 2004. And on Mar. 8, Softbank, a high-tech outfit with growing Internet interests, offered executives about $20 million in warrants maturing in 2003. It may be a modest beginning, but, says Naohiko Abe, a consultant with Towers in Tokyo, ''we now are very busy helping companies overhaul their compensation programs.'' More fundamentally, companies are dumping on rigid pay scales based on seniority that treat corporate stars and slackers the same. Now the deal is that if you don't perform, you're out. ''But if you do [perform], we will double your salary over your peers,'' says Takeshi Inoue, a consultant at Boston Consulting Group Inc. in Tokyo. For years the pay packages of Japanese chief executives, whose base salaries range from $330,000 to $800,000 at the top companies, have lagged badly behind those in the U.S. Just how badly was obscure because of the secrecy surrounding the compensation of Japanese execs such as Sony Chairman Norio Ohga. Japan's commercial code doesn't require the data to be published, so companies don't. Headhunters and compensation experts make informed guesses by delving into government lists of the country's wealthiest taxpayers, and making their own informal surveys. Until 1997, stock options weren't an issue because they were banned, except at small venture companies. While some Japanese bosses might have envied the huge packages of U.S. rivals, they had different sorts of rewards. For one thing, Japanese executives led calmer lives because they escaped the incessant scrutiny of earnings and share prices. However with low credit ratings and their banks in a dire state, Japanese companies increasingly need to compete for capital in global markets. That means a higher stock price is essential. Companies also feel compelled to compete with Western rivals such as Microsoft Corp. and Dell Computer Corp. that do offer stock-option plans to lure the best young talent graduating from the universities. Payment by results fits into the restructuring needs of big companies, too. Lower pay scales imposed on less productive and expensive older employees could encourage them to leave, easing the way toward making big workforce reductions by attrition. If Japan, as expected, adopts U.S.-style 401(k) portable pension plans in 2001, the move will likely speed up the trend toward incentive pay. It would certainly make Japan's labor market far more flexible and make higher share prices a real priority for Japanese managers. There won't be an avalanche of multimillion dollar stock-option deals, but Japan's paternal reward system is probably a thing of the past. By Brian Bremner in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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