TOKYO — More Japanese companies are including stocks as part of their compensation packages, even for overseas employees not allowed to own securities accounts in Japan, as global competition for top talent grows.
Japanese businesses have followed the lead of the U.S. and Europe and are making use of stock options to compensate executives, and have recently widened the practice to include actual stocks.
But nonresidents generally are barred from having securities accounts in Japan, preventing foreign employees and executives from owning stocks or exercising stock options, putting Japanese companies at a competitive disadvantage in the hunt for global talent.
In response, some employers are devising innovative ways to work around such restrictions.
Tokyo Electron launched a scheme this month under which it sets aside 5.1 billion yen ($46.2 million) to buy its own shares. Qualifying employees above a certain pay grade receive points based on their position, which they can exchange for shares. The program is open to about 20% of the chipmaking equipment producer’s employees at home and abroad, including 700 to 800 Japanese nationals on assignment overseas.
For those unable to have a securities account in Japan, Tokyo Electron will make them beneficiaries to individual trust accounts set up for this program. This allows even foreign nationals outside Japan to reap practically the same benefits as those who hold company stock for the long term, and lets them decide when to buy or sell shares as well.
Nidec introduced a similar program for 26 of its executives and directors at the motor maker’s five main markets, including the U.S. “We need our overseas executives to be actively thinking about our performance,” Senior Vice President Takeaki Ishii said.
Meanwhile, Recruit Holdings debuted a stock compensation program for non-Japanese residents when it appointed the chief of American unit Indeed as a director.
More than 40% of Japanese companies now provide stock-based compensation, part of their efforts to get directors and employees to consider the perspective of shareholders. The number of those offering actual stocks overtook those offering options for the first time in May, by a count of 794 to 600.
Employees with stock options do not necessarily lose money from a drop in share prices, raising concern that this could encourage risky decisions. But as executives holding actual stocks weigh risks and returns, they could suffer a direct hit to their own pockets. Stocks also carry fewer restrictions than options, and do not become worthless when the holder cannot exercise them by an expiration date.