Disclosure of Azbil’s Remuneration Policy Based on Policy for Determining Executive Remuneration

TOKYO, Aug 9, 2022: Azbil Corporation (Tokyo Stock Exchange Code: 6845) announced that it has disclosed its remuneration policy, based on a policy for determining remuneration for the Company’s officers (corporate executives and directors) that was passed by resolution of the Remuneration Committee, which is chaired by an outside director.

The azbil Group has established its long-term targets (to achieve by FY2030) and a medium-term plan (FY2021–FY2024), whose aim is to contribute “in series” to a sustainable society and achieve growth through providing automation-related products and services. Guided by the Group philosophy of “human-centered automation,” Azbil will secure its own medium- and long-term development while striving to sustainably enhance its enterprise value. Based on the above management philosophy, in order to promote further reforms of the company’s corporate governance, Azbil transitioned to a company with a three-committee board structure, following approval at the 100th Ordinary General Meeting of Shareholders held on June 23, 2022.

Now that this transition has been completed, the Remuneration Committee, which is chaired by an outside director, has formulated a policy for determining executive remuneration suited to the new corporate structure. In conjunction with this revision of the executive remuneration system, which now includes a stock compensation plan, the company has disclosed its new remuneration policy.


Executive Remuneration Policy of Azbil Corporation


Guided by the azbil Group philosophy of “human-centered automation,” Azbil Corporation (“the Company”) aims to contribute “in series” to a sustainable society by providing automation-related products and services.


With regard to our executive remuneration system, in order to add impetus to the realization of our long-term targets (to achieve by FY2030) and the medium-term plan (FY2021–FY2024), we will further increase both the corporate executives’ awareness of the need to contribute to enhancing enterprise value and their motivation to maximize shareholder value, as well as ensuring that directors who are not responsible for business execution can share value with our shareholders. With this system, we will promote initiatives to contribute “in-series” to a sustainable society.


■ The azbil Group philosophy
The azbil Group philosophy is to realize safety, comfort and fulfillment in people’s lives and contribute to global environmental preservation through “human-centered automation.” To achieve this,
・We create value together with customers at their site.
・We pursue our unique value based on the idea of “human-centered.”
・We think towards the future and act progressively.


■ Basic policy regarding executive remuneration
Aiming to realize the Group’s philosophy, we have adopted the following basic policy for the remuneration of Company officers to motivate them not only as regards short-term performance but also to achieve medium- and long-term performance goals and to enhance enterprise value.
・Taking into consideration the nature of the Company’s business, the remuneration should encourage awareness of the necessity to enhance enterprise value from a medium- to long-term perspective and further promote value sharing with our shareholders.
・The remuneration should contribute to securing talented management personnel to realize the Company’s management philosophy and achieve medium- to long-term performance goals.
・The remuneration system should be highly independent and objective, and should enable us to fulfill our duty of accountability to the Company’s stakeholders.


■ Remuneration levels
Remuneration levels for the Company’s officers (corporate executives and directors) shall be set by resolution of the Remuneration Committee, after it has verified their appropriateness using data supplied by an external research agency. Also, the Committee shall review remuneration levels as necessary in response to changes in the external environment.


■ Remuneration structure
The remuneration structure for our corporate executives (including corporate executives who concurrently serve as directors, similarly hereinafter) comprises basic remuneration, which is a fixed remuneration paid monthly based on their roles and responsibilities; bonuses as short-term incentives; and stock-based compensation as a medium- to long-term incentive. In order to ensure a remuneration structure that motivates officers to achieve our medium- and long-term performance targets and enhance enterprise value, the incentive component of their remuneration has been increased, and the combined remuneration for corporate officers will be typically determined thus: basic remuneration 56%, bonus (base amount) 33%, stock-based compensation (base amount) 11%. The remuneration for directors (not including directors who concurrently serve as corporate executives, similarly hereinafter) comprises basic remuneration and stock-based compensation.

● Corporate executives
(1)Basic remuneration
・ Basic remuneration is paid as a fixed monthly monetary remuneration based on the position, responsibilities, and roles of the officer.
(2)Bonus
・ A bonus is paid as performance-linked monetary remuneration that takes into consideration the Company’s performance and non-financial metrics for the single fiscal year.
・ As regards the financial metrics, to improve enterprise value over the medium to long term, we use sales and operating income, the Company’s main management indices, as key performance indicators (KPIs). The amount of the bonus will fluctuate according to the degree by which these targets have been achieved, while taking also into consideration non-financial metrics.
・ The non-financial metrics are based on the degree of achievement of the various roles of the corporate executive, such as implementing measures to realize the medium-term plan, engagement in CSR management, and the development of human resources (succession training). The Remuneration Committee determines the amount of remuneration based on such evaluation.
・ Taking into account both financial and non-financial metrics, the final amount paid as a bonus will vary between 0% and 150%.
・ The remuneration is designed so that the higher the officer’s position, the higher the weighting of financial metrics. As an example, the KPIs and their respective evaluation weightings for the president and CEO are as follows.


Bonus KPIs Evaluation weighting
Financial metrics Net sales 45%
Operating income 45%
Non-financial metrics Improved customer satisfaction, increased efficiency and productivity, HR development, revitalization of the organization, CSR management 10%


Stock-based compensation
・ In principle, stock-based compensation is paid to the corporate executive following retirement from the current position, with the aim of continuously enhancing enterprise value while sharing value with the shareholders.
・ A base amount for stock-based compensation is set for each position. Of this, 50% is performance-linked and the remaining 50% is non-performance-linked.
・ As regards KPIs, the performance-linked component uses relative TSR—a metric that evaluates total shareholder return relative to the Tokyo Stock Exchange Stock Price Index (TOPIX)—designed to ensure that officers and shareholders have a shared interest; and operating income margin, a metric set forth in the Company’s medium-term plan. As a non-financial metric, we use effective CO2 reduction at customer sites, which is one of the essential goals of the azbil Group for the SDGs. Stock-based compensation will vary between 0% and 150% depending on how much the targets have been achieved during the period covered by the mid-term plan. The evaluation weightings for each KPI are as follows.


Stock-based compensation KPIs Evaluation weighting
Financial metrics Relative TSR (vs. TOPIX, including dividends) 50%
Operating income margin 30%
Non-financial metrics Effective CO2 reduction 20%


・ As a way to further encourage value sharing with shareholders, the non-performance-linked component is paid as stock-based compensation with vesting of a fixed number of shares.
・ Stock-based compensation is paid through a trust-type stock compensation plan. Under this plan, points corresponding to an officer’s position are awarded annually, and Company shares equivalent to the number of points accumulated are transferred from the trust to the plan-eligible person following retirement from the current position.


● Directors
(1)Basic remuneration
・ Basic remuneration is paid as a fixed monthly monetary sum based on the responsibilities pertaining to the position.
(2)Stock-based compensation
・ In principle, stock-based compensation is paid to the director following retirement from the current position, with the aim of continuously enhancing enterprise value while sharing value with the shareholders.
・ A base amount of stock-based compensation is determined, which is entirely non-performance-linked.
・ Stock-based compensation is paid through a trust-type stock compensation plan. Under this plan, a certain number of points are awarded annually to those eligible, and Company shares equivalent to the number of points accumulated are transferred from the trust to the plan-eligible person following retirement from the current position.


■ Process for determining remuneration
・ The Remuneration Committee determines the remuneration of directors and corporate executives. The majority of the members of the Remuneration Committee, including the chairperson, are outside directors, which ensures objectivity and transparency.
・ The Remuneration Committee has the authority to determine the remuneration details of individual directors and corporate executives of the Company. It arrives at evaluation decisions based primarily on (1) the policy regarding the determination of remuneration details for individual directors and corporate executives; (2) the remuneration details for individual directors and corporate executives; and (3) in the case of corporate executives, the degree of achievement of both company-wide performance targets and the individual targets set for each corporate executive for the purpose of determining performance-based remuneration.
・ In the event of a substantial change occurring in the Company’s external environment, the Remuneration Committee may take exceptional measures after carefully deliberating on the appropriateness of the target values, and calculation methods used, for determining performance-linked remuneration.


■ Non-payment of stock-based compensation
・ If it is determined that an officer is responsible for a serious misconduct or violation, the Company can deny all or part of the Company’s shares that were to be transferred to said officer under this plan.


■ Disclosure policy
・ Details of the executive remuneration system are compiled and disclosed—in accordance with our disclosure policy, applicable laws and regulations—promptly and proactively through the annual Securities Report, reference materials for the General Meeting of Shareholders, Business Report, Corporate Governance Report, Company website, etc. The Company implements a policy of active engagement with shareholders and investors.


Guided by the azbil Group philosophy of “human-centered automation,” Azbil will continuously strive to achieve further sustainable growth and increase enterprise value while responding to the changing times.

* Posted information is accurate as of the date of announcement.


Contact

For media inquiries
Robert Jones / Mikako Takahashi
Public Relations Section, Azbil Corporation
Phone: +81-3-6810-1006 Email: publicity@azbil.com