SDK to Revise Amount of Director Compensation (in Money) Following Revision of Director Compensation Scheme and to Partially Revise Performance-Linked Stock Compensation Scheme
TOKYO, Feb 14, 2022 – (JCN Newswire) – Showa Denko (SDK; TSE: 4004) chose at its board conference today to send propositions to the 113 th normal basic conference of investors on March 30, 2022 (” the General Meeting of Shareholders”) for modifying the quantity of director settlement in cash following a modification of the director settlement plan and partly modifying the performance-linked stock settlement plan.
1. Background and function of the modification
To accomplish its long-lasting mathematical objectives stated in the long-lasting vision (2021-2030) for the freshly incorporated business, SDK means to make sure executive officers’ dedication to monetary outcomes and improvement of business worth, awareness of a co-creation-type chemical business with a dedication to “Change society through the power of chemistry” in addition to reflection of the principle of settlement plans under the long-lasting vision. Hence, the board solved to modify the director settlement plan topic to approval of the General Meeting of Shareholders, and send propositions worrying modification of the quantity of director payment in cash along with partial modification of the performance-linked stock payment plan.
For information, please describe “Reference: Outline of New Director Compensation Scheme” explained later on.
2. Modification of the quantity of director settlement (in cash)
At the 107 th regular basic conference of investors on March 30, 2016, it was authorized that the quantity of director settlement in cash need to not surpass 42 million yen a month.
Based on considerations of the Compensation Advisory Committee, where independent outdoors directors have a bulk, the board chose to recently set the optimum quantity of fundamental settlement for directors and short-term-performance-linked payment for directors (leaving out outdoors directors) at 850 million yen a year, consisting of the optimum of 100 million yen a year for outdoors directors. In setting this quantity, the board considered the level of the Showa Denko Group’s social function and duty, patterns of business in the chemical market and others completing in service and for personnels, and modifications in the management environment.
3. Partial modification of performance-linked stock settlement plan
( 1) Outline of modification
At the 107 th common basic conference of investors on March 30, 2016, it was authorized to present a performance-linked stock settlement plan for directors (omitting outdoors directors) and business officers (” Directors and Others”). This plan is based upon Board Benefit Trust, or BBT (” the Scheme”).
Based on considerations of the Compensation Advisory Committee, and considering the degree of the Group’s social function and obligation, patterns of business in the chemical market and others completing in service and for personnels, and modifications in the management environment, we chose to even more clarify the linkage in between director settlement and SDK’s company results along with stock worth. By sharing both the benefits of greater stock costs and the threats of lower ones with investors, Directors and Others will increase their dedication to greater medium-to-long-term service outcomes and business worth. Therefore, we chose to modify the optimum quantity of funds SDK will add to the trust, and reinforce the linkage to service outcomes.
While we included Councilors to the scope of the Scheme at the board conference on March 5, 2019, we will eliminate them this time following the modification of the Scheme.
( 2) Specific material of the Scheme after modification
1) Outline of the Scheme
The Scheme is a performance-linked stock payment plan in which a trust obtains shares in SDK utilizing funds contributed by SDK and the shares are given by the trust to SDK’s Directors and Others pursuant to the Director Share Grant Regulations recommended by the Board of Directors. The shares are given to each of the Directors and Others at the time of resignation, in concept.
2) Targets of the Scheme
Directors and Corporate Officers of SDK (leaving out Outside Directors and Members of the Audit & Supervisory Board)
3) Trust duration
The trust duration will be from May 2016 to the expiration of the Trust. (No particular expiration date is set for the Trust, which will stay in impact as long as the Scheme continues to be in force. The Scheme will end in case of a stock market delisting of shares in SDK, an abolition of the Director Share Grant Regulations or other situations.)
4) Amount of funds added to the Trust
SDK has actually presented the Scheme for 3 fiscal years from the one ended December 31, 2016 to the one ended December 31, 2018 (this duration of preliminary 3 fiscal years, along with each subsequent duration of 3 fiscal years, are hereinafter described as “Target Period”) and for each of subsequent Target Periods. SDK contributed approximately 400 million yen to the Trust as funds to get shares in SDK for the function of approving them to Directors and Others along with Councilors under the Scheme. Qualified Directors and Others along with Councilors are dealt with as recipients of the Trust. Utilizing funds contributed by SDK, the Trust has actually gotten 3,000,000 shares in SDK.
The Trust will continue for the function of giving advantages to Directors and Others based upon the Scheme. SDK will make an extra contribution of as much as 2,400 million yen (consisting of 1,350 million yen for Directors) for each of the Target Periods till the termination of the Scheme, as funds to get shares in SDK. If, nevertheless, in case of SDK making such extra contribution, the trust properties consist of any recurring SDK shares (leaving out shares yet to be approved to Directors and Others in addition to Councilors, amongst SDK shares representing the variety of points appointed to such executives) or any cash (” Residual Shares, and so on”) on the last day of the Target Period right away preceding the Target Period for which SDK means to make the extra contribution, the combined overall worth of the Residual Shares, and so on (the relevant worth of the SDK shares will be the quantity of their book worth on the last day of those immediately-preceding Target Period) and the cash will be within the limitations of the optimum quantity authorized by the General Meeting of Shareholders. When extra contribution is chosen, SDK will divulge it in a prompt and suitable way.
5) Method for the Trust to get shares and the variety of shares to be gotten
The Trust will obtain shares in SDK by method of the stock exchange or by underwriting shares of SDK’s treasury stock, utilizing funds contributed according to 4) above. The ceiling of the overall variety of indicate be given to Directors and Others for each fiscal year will be 730,000 as explained in 6) listed below. Therefore, the ceiling of the overall variety of SDK shares to be obtained by the Trust for each Target Period will be 2,190,000 SDK will reveal information of share acquisition by the Trust in a prompt and suitable way.
6) Upper limitation of the variety of SDK shares to be given to Directors and Others
Standard points are given to each of Directors and Others for each fiscal year according to his/her position in addition to market value of SDK shares. These basic points are examined after 3 years, and increased by an examination coefficient referring to overall investor return (TSR) for the pertinent 3 years. (The coefficient is embeded in the variety of 0%to 200%in accordance with relative TSR ranking in the chemical market, and so on) Thus, conclusive points are offered to particular Directors and Others. In case of dividends for SDK shares within the Trust possessions representing the conclusive points provided to Directors and Others as an outcome of dividend of surplus by SDK, extra points will be offered to Directors and Others by dividing the quantity of dividends by the book worth of shares held by the Trust since the efficient date of dividend payment. (A portion is to be settled.) The optimum variety of indicate be provided to Directors and Others for one fiscal year (after increased by the TSR-related coefficient and consisting of extra points at the time of dividend payment) will be 730,000(consisting of 410,000 for Directors). This number has actually been chosen after detailed factor to consider of the present level of director payment, the variety of Directors and Others, and future possibility. We consider this number is sensible.
Each indicate be approved to Directors and Others is transformed into one typical share in SDK on the event of the share approving pointed out in 7) listed below. (If, nevertheless, SDK shares go through a share split, gratis share allocation or share combination after the plan modification is authorized by the General Meeting of Shareholders, the Trust will make a sensible modification to the ceiling of the points, given points, or conversion ratio, according to the relevant portion figures.)
The variety of shares (730,000) representing the ceiling of indicate be provided to Directors and Others for one organization year represent approx. 0.4%of the overall stocks released (since December 31, 2021, after reduction of treasury stock). The variety of points for Directors and Others, utilized as a basis for approving shares in 7) listed below, will be the variety of points provided to Directors and Others by the time of resignation, in concept. (The points therefore computed will be hereinafter described as “Total Definitive Points.”)
7) Timing of approving SDK shares
After resignation, any of the Directors and Others fulfilling recipient requirements stated in the Director Share Grant Regulations will be permitted, in concept, to get SDK shares from the Trust representing a relevant variety of Definitive Points as stated in 6) above, by carrying out a defined recipient decision treatment. In case of a resolution of termination at a basic conference of investors or resignation due to breach of task, SDK might not offer a conclusive point associated to basic points or cancel currently offered points in entire or in part. This will likewise use to a case of voluntary retirement, where the Compensation Advisory Committee chooses not to provide a conclusive point associated to basic points or cancel currently offered points in entire or in part. In case of misbehavior, SDK might nullify the right to get advantage or need return of payment after considerations at the Advisory Committee and by resolution of the Board of Directors, depending upon the timing of misbehavior and the timing of its discovery.
8) Exercise of ballot rights
On the directions of the trust administrator, the Trust will consistently not work out ballot rights for SDK shares kept in the trust account. This is planned to make sure the neutrality of SDK’s organization management concerning the ballot rights of such shares.
9) Handling of dividends
The Trust will get dividends for SDK shares kept in the trust account, and utilize them to get other shares in SDK and pay trust costs payable to the trustee. Pursuant to the Director Share Grant Regulations, any such dividends staying in the trust account at the termination of the Trust will be given to Directors and Others serving SDK at the time in percentage to the variety of points held respectively.
10) Procedure to be carried out at trust termination
The Trust will end in case of a stock market delisting of shares in SDK, an abolition of the Director Share Grant Regulations or other scenarios. SDK will get, at no charge, all SDK shares amongst properties kept in the trust account at the termination of the Trust, and retire them with the resolution of the Board of Directors. Any cash consisted of in the recurring properties kept in the trust account at the termination of the Trust will be provided to SDK in a quantity less the reduction of the total up to be approved to Directors and Others as specified in 9) above.
Reference: Outline of New Director Compensation Scheme
When the propositions for modifying the quantity of director settlement in cash and partly modifying the performance-linked stock settlement plan are authorized by the General Meeting of Shareholders, the brand-new director payment plan for SDK in and after 2022 will be as described listed below:
1. Fundamental policy
– Directors (leaving out outdoors directors)
— A payment plan proper for hiring and preserving outstanding personnels inside and outside Japan as SDK intends to end up being a world-leading chemical business for sophisticated practical products
— A settlement plan that will assist encourage efforts to accomplish monetary objectives and increase medium-to-long-term business worth, consequently adding to sustainable development of the Group
— A transparent, reasonable and logical procedure for choosing settlement from the perspective of responsibility to all stakeholders, consisting of investors
– Outside directors
— A settlement plan proper for the function and obligation for monitoring the management of SDK from an independent and unbiased viewpoint
2. Structure and levels of payment
The payment for executive directors and business officers includes fundamental payment (repaired settlement) based upon position, short-term performance-linked payment, and medium-to-long-term performance-linked settlement (stock-based payment). In case of a basic quantity for President and CEO, the percentages of fundamental, short-term performance-linked, and medium-to-long-term performance-linked payments are approximately 40%: 30%: 30%. Settlements for other executive directors and business officers are chosen in line with the case of president. When it comes to director and chairman of the board (without right of representation), short-term performance-linked settlement will not be given up view of its standard function of monitoring the management. Payment paid to non-executive directors, outdoors directors, and members of the Audit & Supervisory Board will be just standard settlement in factor to consider of their functions and duties. In choosing the structure and levels of payment, we will utilize unbiased marketing research information offered by external specific organizations (such as Willis Towers Watson’s database relating to settlement for executives). We will think about the outcomes of contrast with worldwide chemical or other product business of a comparable scale.
3. Incentive settlement
Incentive payment will be approved according to efficiency based upon indexes of long-lasting mathematical objectives consisted of in the incorporated business’s long-lasting vision. It is planned to prompt efficiency of jobs for understanding vision and method under the payment plan connected to organization outcomes and business worth.
i) Short-term performance-linked settlement (benefits)
Payment to each individual is chosen by increasing basic worth (chosen beforehand based upon position) by efficiency examination coefficient (altering in the series of 0%-200%). The coefficient includes general service results examination (70%) and individual examination (30%). When it comes to representative director and chairman of the board, just general service results assessment is thought about.
Indexes of general organization outcomes assessment include the quantity of combined EBITDA (20%), the ratio of combined EBITDA to sales (30%), and ROIC (20%). When it comes to the very first 2, assessment is made relative to the degree of accomplishment of objectives for each term. When it comes to ROIC, examination is made on the basis of the average for the previous 3 years.
Personal efficiency examination is made by the Compensation Advisory Committee delegated by the Board of Directors worrying private objectives, examination, and the quantity of payment. In case of misbehavior, SDK might nullify the right to get advantage or need return of payment, depending upon the timing of misbehavior and the timing of its discovery. The Board of Directors will decide on the matter after considerations at the Advisory Committee.
4. Medium-to-long-term settlement (stock-based settlement)
Under the brand-new plan, points are provided by increasing basic figures (chosen ahead of time based upon position) by TSR examination coefficient (altering in the series of 0%-200%). TSR assessment coefficient will be chosen based upon SDK’s rank order of three-year relative TSR assessment (percentile, hereinafter “%ile”) by contrast with rivals in the chemical/textile markets having comparable service designs and of the exact same size or bigger. To motivate awareness of the long-lasting vision, TSR coefficient will be set at 100%when SDK’s rank order remains in 60%ile, while it will be 0%when SDK’s rank order is listed below 20%ile. To promote long-lasting sharing of worth with investors, shares will be given up a swelling after resignation according to cumulative points.
In case of misbehavior, SDK might nullify the right to get advantage or need return of payment, depending upon the timing of misbehavior and the timing of its discovery. The Board of Directors will decide on the matter after considerations at the Advisory Committee.
5. Payment governance
SDK’s Compensation Advisory Committee is chaired by an independent outdoors director, and independent outdoors directors/auditors represent most of committee members. The committee will make propositions and reports as essential to the Board of Directors in view of the most recent scenario worrying executive settlement and market patterns, outcomes of contrast with pertinent rivals, and other pieces of suggestions. To guarantee high levels of self-reliance and neutrality in choosing settlement for particular directors, the Board of Directors will choose, after the conclusion of the General Meeting of Shareholders, to delegate the choice to the Compensation Advisory Committee. SDK has actually designated Willis Towers Watson, an external consultancy, as consultant.
As for the structure of our Board Benefit Trust, please check out the site of the trustee, Mizuho Trust Banking Co., Ltd. (https://www.mizuho-tb.co.jp/corporate/nenkin/nenkin_esop.html )
About Showa Denko K.K.
Showa Denko K.K. (SDK; TSE: 4004, ADR: SHWDY) is a significant maker of chemical items serving from heavy market to computer systems and electronic devices. The Petrochemicals Sector offers cracker items such as ethylene and propylene, the Chemicals Sector offers commercial, high-performance and high-purity gases and chemicals for semicon and other markets, the Inorganics Sector offers ceramic items, such as alumina, abrasives, refractory/graphite electrodes and great carbon items. The Aluminum Sector offers aluminum products and high-value-added made aluminum, the Electronics Sector supplies HD media, substance semiconductors such as ultra high intense LEDs, and unusual earth magnetic alloys, and the Advanced Battery Materials Department (ABM) offers lithium-ion battery parts. To learn more, please check out www.sdk.co.jp/english/.
For more details, contact:
Showa Denko K.K., Brand Communication Department, Tel: 81 -3-5470-3235
Source: Showa Denko K.K.
Sectors: Chemicals
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