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Relation between Top Executive Compensation Structure and Corporate Governance: Evidence from Japanese Public Disclosed Data


  • Hideaki Sakawa,

  • Keisuke Moriyama,

  • Naoki Watanabel

Address for Correspondence: Hideaki Sakawa, Graduate School of Economics, Nagoya City University, 1 Yamanohata, Mizuho-cho, Mizuho-ku, Nagoya 467-8501, Japan. E-mail:


Manuscript Type


Research Question/Issue

This paper explores the incentive structure of executive compensation in Japan in 2010, when Japanese individual executive compensation data for those receiving more than 100 million Japanese yen were made public for the first time. This public disclosure enables investigation of the relation between cash-based and stock-based individual incentive compensation and corporate governance mechanisms in Japan.

Research Findings/Insights

Results show that 1) the bank ties do not substitute for incentive compensation, unlike in the 1990s in Japan, when they were effective for solving agency conflicts; and 2) the role of incentive compensation is found to be effective for firms with a higher degree of foreign ownership. We also examine the role of the new internal control mechanism of firms with a committee system which includes a compensation committee for facilitating incentive compensation. However results show that internal control systems of firms with committees only facilitate short-term incentive packages because they fall into short-termism as a result of their short duration of a single year.

Theoretical/Academic Implications

Theoretically, bank ties do not contribute as a substitute for incentive compensation to align management and shareholder interests under a Japanese relationship-oriented system. This implies that Japanese relationship-oriented systems would have been weakened by solving agency conflicts. Furthermore, firms with committee systems can no longer provide managerial incentives because of the short-termism of committee members.

Practitioner/Policy Implications

This study provides insights for practitioners and policymakers interested in executive compensation structures in any country where corporate governance is reformed to introduce Anglo-American mechanisms.