Directors are not employees, so their pay is remuneration for a mandate rather than wages. Under the Companies Act, shareholders must approve the amount, a cap or the calculation method, usually as an annual ceiling for the whole board, and the board then decides individual amounts within it. Since March 2021, large listed companies must also adopt a policy for deciding individual pay and explain it to shareholders.
The tax rules shape the pay design more than company law does. A company can deduct director pay only in three forms: fixed amounts paid at regular intervals, normally set once a year within three months of the start of the financial year; fixed amounts notified to the tax office in advance, which is how most director bonuses are paid; and performance-linked pay meeting strict conditions, including a published, objective formula. Pay outside these categories, such as a discretionary bonus decided at year end, is not deductible. The advance notice is due within one month of the shareholder resolution, and no later than four months after the start of the financial year.
Since 2010, listed companies have had to name in their securities reports each officer paid 100 million yen or more. The number keeps rising with equity pay and foreign executives: Tokyo Shoko Research counted 934 people at 387 companies for the year to March 2026, both records. Even so, Japanese chief executives earn far less than their Western peers. A June 2026 survey by HR Governance Leaders of CEOs at the largest companies by market capitalisation put median 2025 pay at about 300 million yen in Japan, 900 million yen in the UK and 4 billion yen in the US, with the gap driven mainly by long-term incentives.
What it means for a foreign employer
- A discretionary bonus is a tax problem. If your Japan country head is a director of the subsidiary, a year-end bonus decided by the region is usually not deductible in Japan. Fix the bonus structure, or pre-notify it, at the start of the year.
- Performance-linked pay is hard for subsidiaries. The conditions assume a disclosing Japanese company with a published formula. A wholly owned subsidiary of a foreign group usually cannot meet them.
- Directors lose employee protections. A candidate moving from employee to director loses overtime rules and employment insurance cover. Some keep a dual status as employee-director; document which part of the pay belongs to which role.
- Equity is pushing the numbers up. Tokyo Shoko Research attributes the rise to performance-linked and share-based pay; Hitachi alone disclosed 34 officers above the threshold. Senior candidates from such companies bring unvested shares into the negotiation.
Sources
- Companies Act, Article 361.
- Corporation Tax Act, Article 34, and Enforcement Order, Article 69.
- Cabinet Office Ordinance on Disclosure of Corporate Affairs (individual disclosure of 100 million yen or more, from fiscal years ending March 2010).
- Tokyo Shoko Research, survey of disclosed officer pay of 100 million yen or more, year to March 2026 (June 2026).
- HR Governance Leaders, 2026 survey of CEO pay in Japan, the US and the UK (June 2026).