"Rewarded with Promotion for Performance?"... Japan's Top 3 Financial Chiefs Receive Low Pay Despite Record Results

Top 3 Financial Groups Achieve Best Performance in 9 Years
Annual Korean Financial Holding CEOs Show Similar Trends
Banks Avoid Excessive Salaries Amid Public Responsibilities

Japan's three major large banking groups recorded their highest performance in nine years, but the compensation of their chief executive officers (CEOs) was found to be significantly lower compared to global banks. Even when compared to the heads of Korean financial holding companies with less than half the market capitalization, the salary gap remains small, leading to voices that the compensation is excessively low relative to the size of the groups.

Headquarters buildings of Japan's three major banks. From the left, Mitsubishi UFJ Bank Headquarters, Mizuho Bank Headquarters, Sumitomo Mitsui Bank Headquarters.

According to the financial results for the 2022 fiscal year (April 2022 to March 2023) announced on the 15th by Mitsubishi UFJ Bank, Mitsui Sumitomo, and Mizuho, the combined annual net profit of the three companies increased by 5% year-on-year to 2.4778 trillion yen (approximately 24.3 trillion KRW). This is the best performance in nine years.

Net profits by bank were 1.1164 trillion yen for Mitsubishi UFJ, down 1.3% from the previous year; 805.8 billion yen for Mitsui Sumitomo, up 14%; and 555.5 billion yen for Mizuho, up 4.7%. The rise in interest rates mainly in the US and Europe increased interest income, resulting in strong performance. In December last year, the Bank of Japan effectively raised interest rates by adjusting the fluctuation range of long-term interest rates upward, which also contributed to the improved results.

However, despite the strong performance, the compensation of the CEOs of the three major banking groups was lower compared to other global banks. The CEO of Mitsubishi UFJ, Kamezawa Hironori, received a total compensation including bonuses of 257 million yen (approximately 2.335 billion KRW) for the 2023 fiscal year. Mitsui Sumitomo's CEO Ota Jun received 186 million yen during the same period. The chairman and CEO of Mizuho Financial Group, Kihara Masahiro, recorded compensation of 146 million yen.

Heads of Japan's three major financial groups. From the left, Masahiro Kihara, Chairman of Mizuho Financial Group; Hironori Kamezawa, CEO of Mitsubishi UFJ; Jun Ota, CEO of Mitsui Sumitomo.
[Image source=Bloomberg]

On the other hand, last year, Jamie Dimon, CEO of the US financial group JP Morgan Chase, and Noel Quinn, CEO of the UK's largest financial company HSBC, received compensation of 34.5 million USD (approximately 45.126 billion KRW) and 7.5 million USD, respectively. Piyush Gupta, CEO of Singapore's DBS Group Holdings, received 11 million USD.

The salaries of Japanese financial group CEOs are also not high compared to the heads of Korea's four major financial groups (KB, Shinhan, Woori, Hana Financial). Last year, among the chairpersons of the four financial holding companies, Yoon Jong-kyu, chairman of KB Financial Group, who received the highest annual salary, earned a total compensation of 1.835 billion KRW including salary and performance bonuses. Considering that Mizuho Financial Group's market capitalization (50 trillion KRW) is 2.6 times larger than KB Financial Group's (19 trillion KRW), the compensation of Japanese CEOs can be seen as excessively low relative to the size of their groups.

Japanese banks, like those in Korea, have a kind of public responsibility and therefore cannot allocate huge bonuses proportional to their performance. Bloomberg explained, "When the financial market crisis hit in the late 1990s, the Japanese government injected funds into banks," adding, "For this reason, lending institutions have both private company and public function identities."

The different compensation system from global companies is also cited as a reason for the lower salaries of Japanese CEOs. Takaki Kushige, director of Willis Towers Watson's Japan division, stated, "Other countries such as the US reward leaders' performance through stock and salary, but Japan traditionally recognizes executives' achievements through promotions."

However, as dissatisfaction with the corporate culture of recognizing achievements through promotions has grown recently, some banks have started to reform their compensation systems. Kushige said, "Some Japanese companies have begun to reform corporate governance and raise top executives' compensation to the levels of the US and Europe," but added, "Since this is a problem rooted in Japan's long-standing corporate culture, it will take a long time for all banks to change their systems."

This content was produced with the assistance of AI translation services.