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Remuneration for Directors and Audit & Supervisory Board Members

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Basic Policy

The Company’s remuneration plan for Directors and Audit & Supervisory Board members is designed to achieve sustainable growth and enhanced corporate value over the medium to long term for the Group in line with the Group’s corporate philosophy, while also ensuring that functions such as business execution and management supervision are exercised appropriately, maintaining transparency and fairness.

Remuneration levels

Considering the need to acquire and motivate outstanding personnel who will take responsibility for the Company’s global business activities, the Company sets remuneration levels fully commensurate with the roles and responsibilities expected of such personnel, referencing remuneration levels at corporations the Company selected as benchmark based on the scale, industry, and business model.

Remuneration System

With regard to remuneration for directors responsible for business execution, the Company has formulated a remuneration system that is closely linked to performance in individual fiscal years, as well as over the medium to long term(including non-financial indicators), while emphasizing sustainable enhancement of corporate value, consisting of fixed remuneration as the basic remuneration, performance-linked bonus, and share-based payment emphasizing the link to shareholder value. Remuneration for Outside Directors and Audit & Supervisory Board Members comprises only fixed remuneration as the basic remuneration in light of their duties.

Contents of Remuneration to Directors（except Outside Directors）

Type of
Remuneration		 Payment Method
Fixed / Variable		 Contents of Remuneration
(Including policy for determining timing or conditions of remuneration)
Fixed Remuneration Cash / Fixed
  • Fixed remuneration for directors of the holding company is determined based on their duties and responsibilities including formulation of group strategies, monitoring group operations, and strengthening corporate governance, and it paid out equally every month.
Performance-linked Bonus Cash / Variable
  • Performance-linked bonus is paid in a lump sum at a certain time every fiscal year, with the amount or calculation method determined based on (1) rate of achievement of the fiscal year’s targets for consolidated revenue, consolidated operating profit, and consolidated business profit before R&D expenses; and (2) progress of business management toward the creation of sustainable corporate value, along with the individual’s personal performance.
Share-Based Payment Non-cash (Shares with transfer restrictions)/ Variable
  • The Company has introduced a share-based payment plan that reflects progress in achieving the targets of indicators, etc. in the 4th Medium-Term Management Plan covering the period from fiscal 2024 to fiscal 2028.
  • Restricted stock allocation agreements stipulating conditions including transfer restrictions for a set period are concluded with the grantees. The plan is designed to function as an effective remuneration system by combining multiple transfer restrictions, including a set performance evaluation period and performance achievement, and by, in principle, granting restricted stock requiring evaluation of performance, etc. (including non-financial indicators), over several fiscal years at the same time in the first fiscal year.
  • Specifically, stock is granted each fiscal year for items requiring evaluation of indicators in a single fiscal year, and in the first fiscal year of the evaluation period for items requiring evaluation of indicators over several fiscal years. In relation to the indicators to be evaluated over multiple years, the periods from fiscal 2024 to 2026 are designated as “Evaluation Period 1”, and fiscal 2027 and 2028 are designated as “Evaluation Period 2”.
  • The eligible Directors should promptly return all of the shares from which the transfer restrictions have been lifted if any amendments (excluding minor ones) are made to the consolidated financial statements of Otsuka Holdings within 3 years after the lifting of the transfer restrictions, or if any damages occurs to the Otsuka group due to excessive investments made during the period of their incumbency (Clawback clauses).

    *The Company also grants Directors of Otsuka Pharmaceutical Co., Ltd., Otsuka Pharmaceutical Factory, Inc., Taiho Pharmaceutical Co., Ltd., Otsuka Chemical Co., Ltd., Otsuka Foods Co., Ltd., Otsuka Warehouse Co., Ltd., and Otsuka Medical Devices Co., Ltd., who do not concurrently serve as Directors of the Company, shares with transfer restrictions through a restricted stock remuneration plan.

    *The summary of the restricted stock is as follows;

Overview of Non-Cash Remuneration (Restricted Stock)

To determine the number of shares to be allocated to grantees of restricted stock, a standard number of shares is set for each fiscal year for each individual, giving consideration to his/her performance of duties, responsibilities, and the weighting versus fixed remuneration as basic remuneration. Based on this standard number of shares, they are allotted for each fiscal year or in the first fiscal year of an evaluation period of several fiscal years, according to the specified conditions for release of transfer restrictions.

  Allotment Ratio for the Standard Number of Shares Fiscal year for Evaluation and Allocation Timing Conditions for Lifting of
Transfer Restrictions
Incumbency Condition 20%
  • Indicators requiring evaluation in single fiscal year
  • Allocation timing: each single fiscal year
 On condition of incumbency in the subject fiscal year for evaluation (single fiscal year) Transfer Restrictions would not be lifted for a grantee if they do not hold an applicable position at the Company at the time the evaluation is finalized.
EPS(Earings Per Share) 20% The basic EPS for the subject fiscal year for evaluation must be at least the EPS stated in the plan at the beginning of the fiscal year, or higher.
TSR (Total Shareholder Return) 10% In the subject fiscal year for evaluation (single fiscal year), the value of (2) should not be below the value of (1) :
(1) TSR of the TOPIX index (including dividends) between the end of fiscal year 2023 and the end of the subject fiscal year for evaluation.
(2) Total Shareholder Return of the Company’s stock, considering the share price at the end of fiscal year 2023 and at the end of the subject fiscal year for evaluation, as well as dividend during the evaluation period. * The method for calculating the fiscal-year-end share price is based on the average of the share price for 3 months (at the end of the month of fiscal year, previous month and the month before last).
Operating CFs before R&D investments 20%
  • Indicators requiring evaluation over multiple fiscal years

    • [Evaluation Period 1]

  • 3 years: from 2024 to 2026
  • Allocation timing: first fiscal year of evaluation

    • [Evaluation Period 2]

  • 2 years: from fiscal 2027 to 2028
  • Allocation timing: first fiscal year of evaluation
 The cumulative total of the actual values of operating cash flow before R&D investments in each evaluation period should not be lower than the cumulative total of the performance targets stated in the 4th Medium-term Management Plan.
ROIC (Return on Invested Capital) 20% The cumulative average of the actual values of ROIC in each evaluation period should not be below the Weighted Average Cost of Capital (WACC) set in the 4th Medium-term Management Plan.
FTSE* 10% FTSE Russel ESG score should be 3.3 or higher in each evaluation period.

*External Evaluation of ESG

Reason for Selection of the Indicators

  • Performance-linked bonus
    For the performance indicators for performance-linked bonus, by combining consolidated revenue, consolidated operating profit, consolidated business profit before R&D expenses, and level of progress in sustainable management, it is possible to evaluate the results of business management for a single fiscal year from multiple perspectives.
  • Share-based payment
    It is possible to evaluate the contribution of enhancing corporate value comprehensively by setting the performance indicators for share-based payment. Incumbency contribution is evaluated as based on achievement of single-fiscal year financial results (EPS, TSR), financial performance indicators from a medium-term perspective (operating cash flow before R&D investments, ROIC), and the achievement of non-financial indicators (FTSE Russell ESG score).

Composition of Outside Director Remuneration
Remuneration for Outside Directors comprises only fixed remuneration, with no variable components based on business performance.

Composition of Audit & Supervisory Board Member Remuneration
Remuneration for Audit & Supervisory Board members comprises only fixed remuneration, with no variable components based on business performance.

Method of Determining the Content of Remuneration of Individual Directors

The Board of Directors determine the individual remuneration of the Directors, based on the deliberations on the evaluation and individual remuneration of the Directors, the appropriateness of the remuneration level, performance-linked bonuses, and evaluation indicators for shared-based payment, including non-financial indicators as well as financial indicators, received from the Nomination and Compensation Committee.

  • For the individual fixed remuneration as basic remuneration for Directors and the individual performance-linked bonuses for each Director (excluding Outside Directors), President and Representative Director, CEO Tatsuo Higuchi, who oversees business execution for the entire Group, is delegated to decide the specific payment amounts based on a resolution of the Board of Directors, then in accordance with this delegation, determines the final remuneration amounts based on the deliberation and report by the Nomination and Remuneration Committee.
  • The individual share-based payment for each Director (excluding Outside Directors) are resolved by the Board of Directors based on the report on the performance evaluation and so forth by the Nomination and Remuneration Committee.

Total Remuneration to Directors and Audit & Supervisory Board Members in 2023

Category of Officers Total Amount of Remuneration
(¥ million)		 Total Amount by Type of Remuneration
(¥ million)		 Number of Eligible Officers
Fixed Remuneration Performance-Linked Bonus Share-Based Payment
Directors (except Outside Directors) 450 300 150 - 8
Audit & Supervisory Board Members (except Outside Audit & Supervisory Board Members) 24 24 - - 1
Outside Directors and Outside Audit & Supervisory Board Members 86 86 - - 8
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