Advantest's executive compensation system consists of fixed compensation (monetary), performance-linked bonuses (monetary), and stock compensation (non-monetary). The executive compensation system is proposed by the Nomination and Compensation Committee to the Board of Directors, and is decided and implemented after a resolution by the Board of Directors and approval by the General Meeting of Shareholders.
Basic Concept of the Executive Compensation System
The basic concept of the executive compensation system is as follows.
-
1.Establish a compensation mix and level that attracts international human resources who can support our global business development In order to continue growing in the semiconductor industry, which is complex and swiftly-evolving on a global level, we will appoint talented human resources from all over the world and compensate them according to global standards.
-
2.Well-balanced bonuses linked to performance
Given that Advantest's business performance fluctuates, we will reward the contribution of officers when business performance is good, and reduce the burden on our company when business performance is declining. -
3.Stock compensation that encourages executives to share the shareholder perspective and promotes a medium/long-term perspective on management
We combine restricted stock compensation (RS), which encourages executives to pursue the medium/long-term corporate value improvement that shareholders desire, and performance share unit compensation (PSU), which encourages the achievement of medium-term management goals that lead to the improvement of corporate value.
Compensation Structure
In June 2024, we partially revised the executive compensation system based on our approach to compensation systems. We reviewed the compensation structure and increased the ratio of stock-based compensation for the Group CEO, Group COO, and some executive officers.
As the ratio fluctuates depending on business performance, the ratio of remuneration is as follows, using standard remuneration as an example. However, if s/he concurrently serves as a director, director remuneration will be paid separately.
| Monetary compensation | Stock compensation | ||||
|---|---|---|---|---|---|
| Fixed compensation | Performance-linked bonuses | Restricted stock compensation | Performance Share Unit compensation | ||
| Business Executives | Group CEO | 1 | 1 | 1 | 1 |
| Group COO | 1 | 1 | 0.75 | 0.75 | |
| Senior Executive Officer | 1 | 1 | 0.5～0.6 | 0.5～0.6 | |
| Executive Officer | 1 | 1 | 0.4～0.5 | 0.4～0.5 | |
| Non-business Executives | Chairman of the Board | 1 | - | 0.5 | - |
| Audit & Supervisory Committee Member | 1 | - | 0.3 | - | |
| Outside Directors (excluding Audit & Supervisory Committee Members) |
1 | - | 0.3 | - | |
Visualization of compensation for the Group CEO
-
*Apart from this, there is a redistribution adjustment (30%) of performance-linked bonuses based on individual evaluation
-
*Depending on the human capital market conditions in each region and industry, additional compensation may be provided for the purpose of securing managers, or those with particular expertise. In principle, adjustments to the level of compensation in different regions will be made through fixed compensation (monetary compensation) and stock compensation, while adjustments to secure specific talent groups will be made through stock compensation (RS or PSU).
-
*The compensation ratios for executive officers other than the Group CEO are as follows. Senior executive officers who are also directors will be compensated separately as directors.
Fixed Compensation
Fixed Compensation (cash compensation) for the Directors and Executive Officers shall be set at an appropriate level according to individual duties and responsibilities, and will be paid monthly, with reference to external objective data.
Performance-linked Bonuses
Performance-linked bonuses are short-term incentives for the results of a single year, and are paid once a year after the performance of the Advantest Group for the relevant business year is confirmed. The distribution according to performance indicators and individual evaluations is as follows:
| Performance indicators |
The KPI is net income. Target amounts will be set by referring to the net income targets of the single-year business plan and Mid-term Management Plan. The Company will pay the standard amount when the target values are achieved, but the amount paid will fluctuate from 0% to 200% of the standard amount depending on whether actual results undershoot or exceed the target values.
|
|---|---|
| Individual evaluation |
Up to 30% of the total amount of performance-linked bonuses for executive officers is redistributed based on individual evaluations conducted by the Group CEO. Evaluation and redistribution proposals are discussed and approved by the Nomination and Compensation Committee and reported to the Board of Directors. In principle, the Group CEO's performance-linked bonus is calculated based on the results of performance indicators, but if the Board of Directors deems it necessary and clearly states their reasoning, it may be increased or decreased. |
Stock Compensation
As far as stock compensation for the Executive Officers is concerned, in order to encourage in order to encourage management from a medium/long-term perspective, we have introduced a restricted stock compensation plan (RS), which is granted on the condition that the company holds shares during the term of office, and performance share unit compensation plan (PSU), which is based to the achievement status of the mid-term management plan.
With respect to stock compensation for directors who do not concurrently serve as executive officers, outside directors, and/or audit and supervisory committee members, we have introduced the Restricted Stock Compensation Plan (RS) with the aim of sharing with our shareholders our pursuit for the improvement of our medium- to long-term corporate value.
Restricted Stock compensation (RS)
-
Executive Officers will receive 50% of stock-based compensation in the form of RS.
-
For Directors who do not concurrently serve as executive officers, outside directors, and/or directors who are audit and supervisory committee members, RS shall be granted approximately 30-50% of fixed compensation.
-
It is granted every year, with restrictions on transfer during the recipient's term of office (obligation to continue holding).
Performance Share Unit compensation (PSU)
-
Executive Officers will receive 50% of stock-based compensation in the form of PSU.
Based on the achievements of the mid-term management targets (KPIs) over a three-year period, shares will be granted in accordance with the points awarded, which will fluctuate between 60 to 140% of the standard units. -
The KPIs are the following three items, and the weight of each item is as follows.
EPS The standard value is 80% of the payment rate. It varies within a range of +/-30 points. Relative Total Shareholders Return (r-TSR) The standard value is 10% of the payment rate. It varies within a range of +/-5 points. Sustainability Evaluation The standard value is 10% of the payment rate. It varies within a range of +/-5 points. -
After the end of the Mid-term Management Plan period, a lump-sum delivery of three years' worth of shares will be delivered with the number of shares varying according to the level of achievement.
-
Appointments during the term of the Mid-term Management Plan will be prorated for the term and additional rights will be granted.
-
Retirements during the term of the Mid-term Management Plan will be prorated over the term and paid as standard performance.
-
Recruit & Retention Program
-
Depending on the human resource market conditions in each region and industry, additional compensation may be granted for the purpose of securing managers or those with expertise. In principle, adjustments in the level of compensation among regions shall be made by means of fixed compensation (monetary compensation) and stock compensation, while securing specific candidates shall be made by means of stock compensation. Stock-based compensation will be in the form of RSs or PSUs, but restrictions on the transfer of RSs under this section will be set for a period of at least three years.
Return of Remuneration
In the event of a violation of relevant laws or regulations or internal regulations by the Directors and Executive Officers, the Board of Directors may decide to reduce future remuneration or refund past remuneration (clawback provision).