As discussion spreads across Japan’s banking industry about incorporating equity compensation alongside traditional cash-based salaries, the integration of capital policy and talent strategy based on US standards is under consideration. Against the backdrop of a sharp expansion in the market capitalization of Japan’s 3 megabanks, the relationship between long-term capital efficiency and employee ownership through equity compensation is examined. The discussion also includes estimates showing specific figures and an explanation of the framework.
News reports indicate that the average annual income of bank employees has risen to ¥6.84 million, with the highest exceeding ¥9 million. Some argue that raising cash compensation alone makes it difficult to maintain purchasing power and lacks sustainability from the perspective of long-term capital policy.
Large US financial institutions use an annual Burn Rate of approximately 0.8%–1.2% to grant equity compensation to employees, while combining it with share buybacks to limit dilution and create a system for increasing employee compensation through equity.
A theoretical estimate of the impact of Japan’s megabanks adopting this US standard involves a mathematical analysis covering approximately 80,000 employees at the major banks, based on the market capitalization having expanded from approximately ¥17 trillion to approximately ¥89 trillion. The analysis suggests that, compared with annual base-pay increases of several tens of thousands of yen, the difference could amount to annual grants worth several million yen and asset creation worth tens of millions of yen.
The introduction of equity compensation is said to have the potential to create management value beyond salary increases. The discussion calls for capital policy and talent strategy to be integrated so that employees become engaged as corporate owners, with the aim of increasing corporate value over the long term.