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Executive Compensation in Japan: Estimating Levels and Determinants from Tax Records

Author

Listed:
  • Minoru Nakazato

    (University of Tokyo Law Faculty)

  • Mark Ramseyer

    (Harvard Law School)

  • Eric Rasmusen

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

Most studies of executive compensation have data on pay but not total income. Because exchange-listed Japanese firms (unlike exchange-listed U.S. firms) need not disclose executive compensation figures in their securities filings, most studies on Japan lack even good data on pay. Through 2004, however, the Japanese tax office disclosed the tax liabilities of the 73,000 Japanese with the highest incomes. We obtained this data, and match the high-tax list against the list of CEOs of the firms listed on Section 1 of the Tokyo Stock Exchange. We thus estimate salaries and risk exposure in a new way. We confirm survey and anecdotal evidence that Japanese executives earn less than American -- about one-fifth the pay, adjusting for firm size and outside income. Tobit regressions show that pay in Japan depends heavily on firm size (a .22 elasticity) and on accounting profitability, but not on stock returns. Additionally, family-owned firms and those with large lead shareholders pay less to employee CEOs not in the family or with large shareholdings, as do firms whose directors have less tenure on the board.

Suggested Citation

  • Minoru Nakazato & Mark Ramseyer & Eric Rasmusen, 2008. "Executive Compensation in Japan: Estimating Levels and Determinants from Tax Records," Working Papers 2008-17, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2008-17
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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2008-17-nakazato-ramseyer-rasmusen.pdf
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    2. Chattopadhyay, Akash & Shaffer, Matthew D. & Wang, Charles C.Y., 2020. "Governance through shame and aspiration: Index creation and corporate behavior," Journal of Financial Economics, Elsevier, vol. 135(3), pages 704-724.
    3. Waldenberger Franz, 2013. "“Company heroes” versus “superstars”: executive pay in Japan in comparative perspective," Contemporary Japan, De Gruyter, vol. 25(2), pages 189-213, August.
    4. Marie-Ann Betschinger, 2015. "Do banks matter for the risk of a firm's investment portfolio? Evidence from foreign direct investment programs," Strategic Management Journal, Wiley Blackwell, vol. 36(8), pages 1264-1276, August.
    5. Ozsoz, Emre, 2022. "Why do American CEOs get paid more than their European Counterparts?," MPRA Paper 123481, University Library of Munich, Germany, revised Dec 2024.
    6. J. Mark Ramseyer, 2014. "Litigation and Social Capital: Divorces and Traffic Accidents in Japan," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 11(1), pages 39-73, March.

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