Rakuten Group, Inc. (hereinafter the “Company”) announces that the Board of Directors today resolved to propose that at the 25th Annual General Shareholders’ Meeting to be held on March 30, 2022, the Company will be authorized to issue the following Share Options as stock options to Company’s Outside Directors separately from the amount of compensation for Directors approved at the 18th Annual General Shareholders’ Meeting held on March 27, 2015.
The Company plans to issue Share Options exercisable while holders of the Share Options remain Outside Directors of the Company. The details of these Share Options are as described below.
1. The reason for justifying the grant of Share Options as stock options to Outside Directors and the basis for calculation
Since the value of the Share Options is linked with the Company’s stock price, delivering the Share Options to the Company’s Outside Directors, who are expected to contribute to the enhancement of the medium- and long-term corporate and shareholder value of the Group as a whole, not only by supervising management but also by providing advice and other support related to management, will allow them to share the gains of shareholders when stock prices rise and feel shareholders’ losses when stock prices fall, thus enhancing their motivation to achieve higher performance and higher stock prices. The Company, through the Board of Directors, has defined a policy for deciding on the content of remuneration for individual Directors. An overview of this policy is provided below. The Company intends to implement stock option plans (share options exercisable while in service) for the Company’s Outside Directors in accordance with the above decision-making policy in expectation of effects to enhance corporate and shareholder value by granting Share Options. We understand that there is a negative connotation to the granting of stock options to Outside Directors since their role is to supervise company’s management. However, as stated above, we intend to grant them stock options with the expectation that advice from Outside Directors shall contribute for appropriate corporate governance through management supervision and enhancement of the Company’s corporate values in the long term.
[Basis for Calculation]
The amount of Share Options to be delivered as part of the remuneration for the Company’s Outside Directors will be calculated by multiplying fair value of each Share Options calculated on the day when such rights are allotted, by the number of Share Options allotted to the Company’s Outside Directors. Fair value of each Share Options will be based on the fair unit price valuation calculated applying variables including share price on the day when the Share Options are allotted and the conditions of Share Options, etc. using an equity option pricing model such as the Black-Scholes model.
[Policies on Determining the Amount of Directors’ Compensation and the Calculation Method (Compensation Policy)]
(1) Basic Policies
The compensation for the Company’s Directors is determined based on the following basic policies.
For executive Directors, a level of compensation that is globally competitive is set to secure and maintain excellent human resources. The portion of share options is designed to be high to promote sustainable growth of the Company by improving medium- to long-term corporate value and achieving management goals. For non-executive Directors, a level of compensation that is globally competitive is set to secure and maintain excellent human resources who will support management with global expertise.
(2) Compensation Structure
The compensation of executive Directors comprises the followings:
a. Basic compensation (fixed, monthly payment)
b. Performance-linked compensation (performance-linked bonuses as short-term incentive compensation, annual payment)
c. Non-cash based compensation (stock-based compensation stock option as medium- to long-term incentive compensation, annual payment)
Additionally, the ratio of basic compensation, performance-linked compensation and non-cash based compensation is set based on position and role of each executive Director. Non-executive Directors and Outside Directors who are independent from business execution are only paid a fixed monthly amount.
If Proposal is approved at this General Shareholders’ Meeting, the Company plans to revise this Compensation Policy and pay non-cash based compensation to Outside Directors as well as incentives for them to contribute to the enhancement of the medium- and long-term corporate and shareholder value of the Group as a whole, by supervising management and providing advice and other support related to management.
(3) Indicators and Method of Calculation of Performance-linked Compensation and Non-cash Based Compensation
To increase awareness of the development and expansion of the Rakuten Ecosystem, multiple KPIs such as consolidated operating income of each fiscal year have been selected for performance-linked compensation and non-cash based compensation. They are linked to growth and profitability. In determining the amount of performance-linked compensation and non-cash based compensation, individual evaluations are determined based on the achievement of targets for the indicator set by the managing organization of each executive Director. The amount paid is determined based on individual evaluations and overall company performance.
(4) Compensation Determination Process
The Company’s Board of Directors resolves the compensation policy for Directors after providing explanations to Independent Outside Directors and obtaining their appropriate advice. Other decision-making processes are also explained to the Independent Outside Directors at the Board of Directors as necessary, and appropriate advice is obtained.
The amount of individual compensation for Directors is determined by Hiroshi Mikitani, the Representative Director, Chairman, President & CEO, who is delegated this authority by the Board of Directors within the compensation limit determined at the general shareholders’ meeting and in accordance with the compensation policy. He evaluates the business each Director is in charge of while considering the Company’s overall performance and obtaining advice from Outside Directors as necessary to determine the amount of individual compensation. Thus, the Board of Directors believes that the content of individual compensation, etc. is in line with the compensation policy.