TM Toyota Motor Corporation

By Sean McLain 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 26, 2018).

TOKYO -- Toyota Motor Corp.'s highest-paid executive got a pay increase of millions of dollars, and he now makes nearly three times as much as his boss.

In an illustration of Japan's unusually low chief executive officer pay -- and the exceptions companies make for non-Japanese executives -- Toyota said that Frenchman Didier Leroy, its chief competitive officer, earned more than Yen1 billion, or about $9.4 million, in the year ended March 2018, representing a 50% raise.

That is a record pay package for the auto maker and nearly triple the roughly $3.5 million earned by the next-highest-paid Toyota employee, President Akio Toyoda, the company's head.

A key reason for the gap is Mr. Leroy's nationality. Toyota said it offers pay that is "competitive," taking into consideration "the remuneration standards of each country and region."

The other reason, according to Toyota, is Mr. Leroy's broad job description, which gives him responsibility for the company's planning, sales and manufacturing operations around the globe.

The Frenchman, who previously worked for Renault SA, is one of seven Toyota executives -- and the only foreigner -- dubbed "the seven samurai" by Mr. Toyoda and placed in charge of transforming the company.

Mr. Toyoda wants to bolster profitability from the company's main business of selling cars while investing in electric and self-driving car research. The company has plowed billions of dollars into those efforts, and it is Mr. Leroy's job to ensure the rest of the business is healthy enough to support that.

Toyota's revenue rose 6% in the year ended March 2018 and net profit rose 36% to nearly Yen2.5 trillion ($22.73 billion), aided by U.S. tax-law changes.

Still, some experts were scratching their heads as to why a French executive was earning so much more than his Japanese peers.

"It's three times the president," said Tokyo-based auto analyst Takaki Nakanishi, in reference to Mr. Toyoda. "I don't see any strong reason why."

Mr. Leroy's salary places him in the same range as Nissan Motor Co. Chairman Carlos Ghosn, who earned more than Yen1 billion in the year ended March 2017, the most recent figures available. Mr. Ghosn also earns money from executive positions at Renault SA and Mitsubishi Motors Corp.

Mr. Leroy's pay package isn't out of line with what he might expect to earn at a similarly sized car company elsewhere in the world. It puts Mr. Leroy roughly in the range of General Motors Co. President Dan Ammann, who manages that company's operations around the world.

Japanese companies are known for their relatively low executive compensation. Last year, American CEOs earned on average close to $12 million a year, four times what the Toyota chief earned, even though the car maker is Japan's largest company by market capitalization and one of the biggest car makers in the world.

One reason for the pay gap is Japan's system of lifetime employment at large companies. Most big companies choose CEOs from their own ranks, and the CEO is typically someone who has worked at the company for more than 25 years. Managers gain greater job security in exchange for the knowledge that they won't make as much as American peers if they reach the top.

Japan's system has long created some awkward pay gaps when its companies go abroad looking for talent and when they send Japanese executives to the U.S. to work alongside higher-paid colleagues.

The U.S. bank now known as MUFG Union Bank, controlled by Tokyo-based Mitsubishi UFJ Financial Group Inc., used to be separately listed in the U.S. before the Tokyo parent took full control. Its final proxy statement before delisting, published in 2008, showed that the Japanese CEO of the U.S. bank earned $523,722, while the chief financial officer earned more than $2 million.

Nicholas Benes, who helped write Japan's corporate-governance code and is co-head of the Board Director Training Institute of Japan, said Toyota might take a closer look at whether its high-performing Japanese executives are getting what they deserve.

"I don't feel like condemning the value" of Mr. Leroy's pay, said Mr. Benes. "It suggests that they're paying their domestic guys too little."

Write to Sean McLain at sean.mclain@wsj.com

(END) Dow Jones Newswires

June 26, 2018 02:47 ET (06:47 GMT)

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