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Why bonus payments to megabank executives are being resumed at snail’s pace?

8, 06. 2008

   Bonus payments for megabank executives have been resumed. The Sumitomo Mitsui Financial Group (FG) and the Mitsubishi UFJ Financial Group (MUFG) were to give bonuses to their executives after the matter was approved at their respective stockholders general meetings held in June 2008. The megabanks have somehow tided over the financial crisis that followed the burst of bubble economy through amalgamations and receiving investments using public funds. Because of the economic setback triggered by the subprime mortgage problems, however, the banks are facing strong criticisms against the payment resumption. The amounts of the payments are much smaller than they used to be, and the payments are coming back slowly at a "snail's pace."

Sumitomo Mitsui 6.8 million yen, MUFG 17.14 million yen

   The Sumitomo Mitsui FG made the payments of the bonuses for executives after the stockholders meeting. The payments totaled 570 million yen. As 84 persons were subjected to the payments, the average came out to be about 6.8 million yen per person. They were first such payments in 16 years for the pre-amalgamation Sumitomo Bank and in 13 years for the old Sakura Bank.

   MUFG is to pay an average of 17.14 million yen to 14 executive on condition that total such payments will not exceed 240 million yen. It will be the first payment of bonuses to executives in 13 years since the pre-merger Mitsubishi, Tokyo, Sanwa and Tokai made last such payments.

   At the shareholders meeting of Mizuho Financial Group, in the meantime, the matter of resuming bonus payments to its executives did not even come up on the agenda for discussion as the group reported a subprime problems-related losses amounting to 645 billion yen for the term ending in March 2008.

   Of the six major banks, Sumitomo Trust & Banking, which was the first of the banks to fully repay the public funds it borrowed and resumed paying back taxes, resumed the payments of bonuses to its executives in the summer of 2004. But the Resona Holdings and the Chuo Mitsui Trust Holdings, both of which have not fully repaid the public funds they borrowed, have not yet re-started bonus payments to their executives.

   As shown by the subprime mortgage crisis-related loss of Mizuho FG, the earnings of the banks are not so good as they were for the term ending in March 2007. The stock prices are hovering at low levels, while the sentiment of economic slowdown is becoming stronger. There are criticisms in the public against banks for being exempted from paying corporate taxes. The reasons for not paying the taxes are that the profits are returned to depositors and stockholders as much as possible and that the banks are still bearing the losses incurred from the bad loans.

   About the resumption of the bonus payments in the condition that may be described as a "head wind," Sumitomo Mitsui FG explained that its settlement of accounts has been in the black for the past three consecutive terms. It said the condition is such that it can continue to report stable performance as its settlement of accounts for the current term is also likely to be in the black. "We know there are various kinds of opinions and criticisms for our not paying corporate taxes. But we hope it to be understood that all the business firms are subjected to the measure and that we are following the rules," said an official at the group.

   MUFG also expressed its hope for understanding about the matter involving the corporate taxes. It pointed out that it will continue to increase dividend payments and maintain the free ATM services at convenience stores. It further stressed that it will continue to serve its stakes holders.

One digit below foreign-invested companies, carmakers

   In the meantime, the voice of surprise is also heard about the small amount of the bonuses paid to the bank executives. "The figure must be one digit lower than ordinary," some people say.

   While the banks were hit by the financial crisis, critical voices were heard that it was wrong for the banks to pay such high wages to bank workers while the banks were helped by the use of public funds. In response to the criticisms, the bonuses for the executives were returned, while the remunerations and wages for their executives and employees were reduced. After the bust of the bubble economy, the bonuses for ordinary directors went down to zero. The remunerations also went down to about 30 million yen per year.

   An official at one of the major banks recalls that nothing could be done when profits were going up because the bank still held borrowing from the public funds to repay. "There was no justification to raise bonuses," he said.

   International financial analyst Jiro Edagawa sympathetically said that the bonus for a bank executive that is short of 10 million yen is "a little too low." "That would not be an amount of money that the top of a bank that represents Japan can receive with pride," he said.

   Comparing with the firms of other industries, the stockholders meeting of Toyota Motor in June, for example, approved the payments of bonuses to its executives amounting to 1,002 million yen. The money will be paid to 29 executives, averaging 34.55 million yen per executive. It is not rare for the bonus payment to exceed 100 million yen at foreign-invested companies. Carlos Ghosn, President and CEO of Nissan Motor, has also been paid more than 100 million yen.

   Edagawa said, "Young employees who watch how much their superiors are receive as they work lose their confidence about their future if their superiors' salaries do not go up. This is the backdrop for the workers in their 30's tend to change the companies they work for to foreign-invested firms. Judging from the wage system of life-time employment, the Japanese banks are losing attractiveness today.

   It may have been necessary to resume the payments of bonuses to megabank executives in order to avoid losing the human resources whom the future management of the banks will rely on.

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