Design of Remuneration for Directors | Integrated Report Portal | Investor Relations

Basic policy of remuneration for directors

IIJ Group recognizes that its target business markets are continuously expanding and IIJ Group is growing in such a business environment, and believes that it is important to develop its business from a long-term perspective in order to ensure the sustainable fulfillment of its management philosophy. With regard to remuneration for full-time directors, IIJ recognizes that stock-related remuneration with appropriate balances between fixed and performance-linked remuneration is effective for long-term enhancement of its corporate value, rather than excessively short-term oriented performance-linked remuneration. Remuneration for part-time directors and Outside Directors who have supervisory functions is only comprised of a fixed base remuneration (cash remuneration) based on their roles and responsibilities.

IIJ's Remuneration system for Directors

In June 2024, the previous director remuneration system (*) shall be renewed to establish a new director remuneration system consisting of a fixed base remuneration (cash remuneration), remuneration that is conditional on tenure as a substitute for stock compensation-type stock options (Ⅰ. restricted stock remuneration), performance-linked remuneration for a single fiscal year (Ⅱ. restricted stock remuneration) and performance-linked remuneration for the medium- to long-term (Ⅲ. restricted stock remuneration). Along with this, it was also resolved that the maximum amount of monetary remuneration for Directors were JPY600 million or less per year, including the maximum aggregate amount of JPY50 million or less per year for Outside Directors, the maximum amount of remuneration for restricted stock remuneration shall be no JPY700 million or less per year, and the maximum number of shares to be allotted as restricted stock remuneration shall be 140,000 shares or less per year.

(*)Previous director remuneration system (excluding part-time and outside directors)
- Fixed base remuneration: cash remuneration
- Non-monetary remuneration: stock compensation-type stock options as an alternative to the previous payment of retirement
- Performance-linked remuneration for a single fiscal year: restricted stock remuneration

Contents of restricted stock remuneration

(Ⅰ) Remuneration that is conditional on tenure (restricted stock remuneration)

Remuneration that is conditional on tenure is a system which is not linked to performance. Under the system, IIJ shall grant to an Eligible Director, depending on the position held by the Director, restricted stock, in relation to which the Transfer Restriction will be removed on the condition that the Eligible Director has served in a position such as a Director of IIJ for a certain period of time.

(Ⅱ) Performance-linked remuneration for a single fiscal year (restricted stock remuneration)

Performance-linked remuneration for a single fiscal year is a performance-based restricted stock remuneration system, under which IIJ grants to an Eligible Director restricted stock after the end of a certain period of time (in principle, one (1) fiscal year) in accordance with the degree of achievement of performance targets and improvement in performance over such period. Performance indicators were year over year growth rate and target achievement rate of consolidated revenue and consolidated operating profit, as indices relating to business growth and improvement in corporate value. These indicators are multiplied by the respective factors to calculate the payment rate for the base remuneration, and the number of shares to be delivered is calculated using the calculation method, based on the stock price at the beginning of the evaluation period, etc.

(Ⅲ) Performance-linked remuneration for the medium- to long-term (restricted stock remuneration)

Performance-linked remuneration for the medium- to long-term is a performance-based restricted stock remuneration system in accordance with the degree of achievement of performance targets and improvement in performance in each fiscal year during the relevant period, the length of such period being the same as that of the Mid-term Plan (hereinafter referred to as the "Fiscal Year Subject to Evaluation"). IIJ grants to an Eligible Director restricted stock after the end of the Fiscal Year Subject to Evaluation. Number of shares to be delivered is calculated for each Fiscal Year Subject to Evaluation, using the calculation method, based on payment rate for the base remuneration, the share price at the beginning of the period of the Mid-term Plan, etc.

The following indicators are used to evaluate the degree of achievement of the Midi-term Plan and to calculate the payment rate.

< Fiscal Years Subject to Evaluation excluding final fiscal year >

The consolidated revenue (30%), consolidated operating profit (30%), engagement index (15%), and performance contribution regarding responsible business (25%).

< Final fiscal year >

The consolidated revenue (30%), consolidated operating profit (30%), engagement index (15%), and performance contribution regarding responsible business (25%), as well as ROE (a requirement for maximizing the payment rate), market value (a requirement for maximizing the payment rate), and ESG management index (a requirement for maximizing the payment rate).

Number of shares to be delivered

Under the New Director Remuneration System, the respective number of shares to be delivered for single-year performance-linked remuneration and medium- to long-term performance-linked remuneration shall be calculated based on the following formulas.

Number of shares to be delivered = base remuneration × payment rate ÷ base stock price

The base remuneration shall be determined after consultation with the Nomination and Remuneration Committee, with the target amount being four months of the monthly fixed remuneration. The payment shall be 0% to 100% (in the case of the final fiscal year of the medium- to long-term performance-linked remuneration, 0% to 125%) based on the aforementioned indices and other factors. The base stock price will be the closing price of IIJ's shares of common stock on the Tokyo Stock Exchange on the business day immediately preceding the first day of the relevant period (or the closing price on the transaction day immediately prior thereto if no transaction is made on such business day). However, if the market price at the time of delivery is an amount which is more than twice the base share price, the number of shares to be delivered shall be the number of shares calculated using the above formula, and then multiplied by twice the base stock price and divided by the market price at the time of delivery.

Acquisition for nil consideration (clawback) and additional grants based on status of achievement of targets

If, in the final fiscal year of the Mid-term Plan, the status of achievement of the various targets for the first and second years and the corresponding payment rates decline significantly, IIJ shall, based on the report of the Nomination and Remuneration Committee, acquire part of the restricted shares already delivered as performance-linked remuneration for the medium- to long-term for nil consideration (clawback). In addition, if, in the final fiscal year of the Mid-term Plan, the status of achievement of the various targets for the first and second years and the corresponding payment rates are significantly elevated, IIJ may, based on the report of the Nomination and Remuneration Committee, make certain additional grants with respect to the number of shares to be granted that is calculated in the final year as performance-linked remuneration for the medium- to long-term.

Allocation of compensation to full-time directors

Without performance-linked remuneration

Fixed remuneration: Cash 86％	Fixed remuneration (conditional on tenure): RS Approx. 1 to 2 months 14%

With performance-linked remuneration

Fixed remuneration: Cash 52％	Fixed remuneration (conditional on tenure): RS Approx. 1 to 2 months 9%	Performance-linked remuneration for a single fiscal year:RS Approx. 0-4 months 17%	Performance-linked remuneration for the mid-to-long term: RS Approx. 0-5 months 22%

(*)The percentages (%) stated in the above table are estimated figures to be paid in the case where the fixed remuneration (conditional on tenure) is equivalent to two (2) months' remuneration, the performance-linked remuneration for a single fiscal year is equivalent to four (4) months' remuneration, and the performance-linked remuneration for the mid-to-long term is equivalent to five (5) months' remuneration (maximum amount).

Grant of stock options as a substitute for the retirement allowance

As a substitute for the abolition of retirement benefits for directors, IIJ grants stock options, which can be exercised at one yen, to each director every year, equivalent to the value of the previous retirement benefits. The value of the granted stock options is equivalent to between one and two fixed monthly remuneration for each director, depending on the director's position.

Year	Provision of restricted stocks as performance-linked bonuses	Grant of stock options as a substitute for the retirement allowance
FY2023	Nine full-time directors, JPY62 million	Nine full-time directors, JPY51 million

Note:
The value of restricted stocks allotted as performance-linked bonuses for FY2023 represents the amount of expenses recognized in the current fiscal year.