Compensation for Directors and Executive Officers

1. Non-executive Directors (including Independent Directors)
   For directors, the compensation standards and compensation system reflect their roles on the Board of Directors and each committee, including the supervision of executive officers' business execution in line with the Company's management philosophy and management strategy, with the aim of achieving sustainable growth and improving corporate value over the medium to long term. The composition consists of basic remuneration and long-term incentives, and is determined by the Remuneration Committee. The long-term incentive shall be in the form of restricted share-based compensation (RS) to promote the sustainable improvement of corporate value and to encourage the Directors to share values with shareholders through the ownership of shares. Furthermore, the Company pays allowances to the Chairman of the Board of Directors, the Lead Independent Director, and the Chairpersons of the Committees based on the extent of their roles and responsibilities and the number of hours spent on their execution of duties.
   
   
2. Executive Directors
   The Company pays its executive directors (CEOs and Representative Executive Officers) remuneration as executive officers, but does not pay them remuneration as directors.
   
   
3. Combination of Compensation
   The combination of remuneration for Directors will be as follows:

*The above is the compensation ratio, and the amount paid to each individual will vary.

1. Compensation System
   For Executive Officers, we have designed a compensation system that encourages them to execute their duties in accordance with our management philosophy and business strategies, and that provides strong motivation for achieving challenging business targets while appropriately controlling risks. The compensation for Executive Officers comprises basic compensation according to the role of President and Representative Executive Officer or each Executive Officer, a short-term performance-linked compensation, restricted stock compensation, and performance-linked stock compensation, and is determined by the Compensation Committee. As the Executive Officers are expected to play key roles in the achievement of numerical targets in their business execution, the compensation system is designed that the portion of the short-term performance-linked compensation may be larger than the portion of the basic compensation if performance targets are achieved.
   
   
2. Combination of Different Types of Compensation
   The compensation mix for Executive Officers will be as follows:

   	Monetary reward		Stock compensation (long-term incentives)
   	Basic Remuneration	Short-term performance-linked compensation	Restricted stock compensation	Performance-linked stock compensation
   President and CEO	1.0	0.6	0.3	0.3
   Executive Officer	1.0	0.6	0.2–0.25	0.2–0.25

   
   ^{*1 The above is the remuneration ratio, and the amount of remuneration paid to each individual will vary.
   *2 Short-term performance-linked remuneration will be paid within the range of 0-200% depending on the degree of achievement of company-wide or business performance targets.
   *3 Performance-linked stock compensation will be paid within the range of 0 to 200% depending on the achievement level of company-wide performance targets.}
   
   
3. Compensation Levels
   The basic remuneration will be aimed at a level that is comparable to that of rival companies in terms of business and human resources (hereinafter referred to as "peer domestic companies"). We will regularly check the standards of our domestic peer companies, while also taking into consideration employee wage levels (disparities with executives, discrepancies with the general public, etc.) and set compensation levels according to roles.
   The total remuneration (basic remuneration, short-term performance-linked remuneration, restricted stock remuneration and performance-linked stock remuneration) is set at a level higher than that of peer companies in Japan if strategic and business performance targets are achieved, and lower than that of peer companies in Japan if they are not achieved.
   

In order to practice advanced ESG management toward a sustainable society through business activities, the Compensation Committee considered it appropriate to strongly motivate directors and officers by reflecting the achievement of ESG goals in their compensation decisions. After extensive discussions, including with reference to the opinions of external experts on global director compensation, the Compensation Committee decided to introduce ESG indicators from the fiscal year ending December 2022.

The evaluation items are: "E" (Environment): CDP (Climate Change) _^*1 , and “S” (Society): Global Engagement Survey _^*2 The implementation rate has been set at 10% of the evaluation indicators for short-term performance-linked compensation. The specific evaluation indicators will be continually reviewed going forward.

^{*1. An ESG rating organization that evaluates strategies for responding to climate change and efforts to reduce GHG emissions.
*2. Since 2019, the survey has targeted employees of Group companies both in Japan and overseas regarding the current state of engagement in the company and workplace, with a view to achieving the desired image in the medium to long term.}

As a principle, certain numbers of restricted shares will be given to Corporate Officers and subsidiaries corresponding to their roles per year.

In principle, restricted stocks are granted each fiscal year in a certain number according to the role of each officer, etc. of the Company or one of its subsidiaries. For the purpose of promoting shareholdings by directors and employees and enhancing the sharing of value with shareholders, the transfer restriction period shall be from the date of allotment until the retirement of an officer or subsidiary of the Company, and the transfer restriction will be lifted when the officer or other member of the Company or a subsidiary of the Company retires. During the transfer restriction period, the shares will be managed in dedicated accounts opened by the applicable officers and directors at securities firms so that they cannot be transferred, pledged on, or otherwise disposed of during the transfer restriction period.

Performance-linked stock compensation is calculated at follows: in the first fiscal year of the medium-term management plan, the Company presets the standard number according to the roles of Corporate Officers eligible to receive payment, and in the final fiscal year of the medium-term management plan, the Company delivers its common shares to Corporate Officers in accordance with the extent to which consolidated return on invested capital (ROIC), which has been set as targets in the medium-term management plan, has been achieved. The Company will make a monetary payment to the Corporate Officers of an amount corresponding to 40% of the above granted shares.

Depending on the degree of achievement of the ROIC target (15%) for the fiscal year ended December 31, 2025, the final year of the medium-term management plan E-Plan 2025, the payment rate is 0% to 200%.

Method of calculation of the number of shares for payment and individual payment amounts
・Number of performance-linked stock compensation payments by shares (rounded down to the nearest whole unit)
Standard number of units × payment rate × 60%
(1 unit = 100 shares of the Company’s common stock)
・Payment amount of number of performance-linked stock compensation by money (rounded down to the nearest 100 yen)
Standard number of units × payment rate × 40% × share price of our common stock*
(1 unit = 100 shares of the Company’s common stock)


*Simple average of the closing price of our common stock in regular trading on the Tokyo Stock Exchange in the two months preceding the month in which the meeting of the Board of Directors to resolve the allotment for the final year of the medium-term management plan is held.

Payment rate
Payment rate (%) = Consolidated return on invested capital (ROIC) × 20-100
The second demical place shall be rounded off to the first decimal place. However, if the calculation result is less than or equal to 0% the rate shall be 0% (not paid), and if the calculation result exceeds 200%, the rate shall be 200%.
Consolidated return on invested capital (ROIC) = NOPLAT (Net Operating Profit Less Adjusted Taxes) ÷ Invested capital {Interest-bearing debt (average between the beginning and end of fiscal year) + Equity attributable to owners of parent (average between the beginning and end of fiscal year)}

① Important other positions held concurrently and their relationship with the Company
As described in “(2) Names, etc. of Directors and Executive Officers.”

② Specific relationships with major business partners and others
Not applicable.