Corporate Governance and Executive Compensation Evidence From Japan

Abstract

Lawmakers around the world are now urging corporations to adopt governance and executive pay standards drawn largely from the American corporate law context.  Yet little is known about how corporate governance actually influences executive compensation decisions outside of the United States—and whether adoption of these standards is likely to be desirable for investors abroad.

In this Article, we take advantage of a recent change in Japanese law to provide the first direct empirical evidence on executive pay in Japan.  The evidence provides striking detail on the amount and structure of Japanese executive compensation.  The data point to a previously unappreciated link between corporate governance and executive pay in Japan and indicate that several trends familiar to the U.S. compensation landscape have begun to take hold in Japanese firms.  Our findings suggest that lawmakers and firms should take careful account of the relationship between governance and pay before importing governance standards from abroad.

The authors thank Jeffrey Gordon, Hideki Kanda, Soren Larson, Edward Morrison, Darius Palia, Mariana Pargendler, Hugh Patrick, J. Mark Ramseyer, Eric B. Rasmusen, Randall Thomas, and workshop participants at the Reischauer Institute of Japanese Studies at Harvard University, the University of Tokyo Summer Program in Corporate Law, the Fundaçao Getúlio Vargas School of Law at São Paulo, and the Conference on Financial Regulation in Uncertain Times at the University of Lugano for helpful comments. We are grateful to Eugene Cheval, Yoshiko Tsuwaki Habe and Roy Moran for outstanding research assistance, and to Takaya Seki of Corporate Practice Partners, Inc. for assistance in identifying and assembling our dataset.