Nissan’s Retirement Deal For Carlos Ghosn Isn’t The Point At All

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Who is right and who is wrong here we don’t know at present over Nissan and the pay of Carlos Ghosn. That the Japanese kept him in for questioning all that time is nothing unusual for anyone accused of anything in that country. The legal system doesn’t work quite the same way it does in other places. However, it is important to understand what the basic allegation is. It isn’t that Ghosn was getting more money than the company was willing to pay him. Not at all. It’s that the amount they were paying him wasn’t quite what was being reported to the stock market. This does matter.

Nissan was prepared to pay former chairman Carlos Ghosn a $40m retirement package in a settlement that raises questions about his arrest for alleged financial crimes, according to a report on Monday. Mr Ghosn has been charged by Tokyo prosecutors with offences relating to reporting his compensation following his arrest in November. He was taken into custody after Nissan worked with Japanese authorities following an internal investigation at the car maker. There were also questions about his use of company properties and finances. However, the Financial Times reported that documents dated 2012 showed that Nissan chief executive Hiroto Saikawa approved a decade-long retirement deal that included…blah, blah, blah.

That’s not the point at all. Ghosn’s package wasn’t out of line for someone running one of the globe’s major car companies, one of the world’s major corporates. Definitely not for someone who rather saved one of them in fact. However, it was hugely out of line with what is normal in Japanese companies which is what the problem was.

As time goes on we find out more about what the charges and allegations against Carlos Ghosn are. As we said back when these public events first started what this is really about is public disclosure of how much he was being paid. On the one side a global executive expecting to be paid global sums in a global industry and on the other the rather lower norms common to Japanese companies. That’s at the heart of the entire matter. What follows, well, that may indeed be illegal and all that but those are the details of how this mismatch was handled, the above is still the basic insight needed to understand what was going on. Ghosn could expect as a global exec to be paid many millions of dollars a year. As a Japanese executive perhaps 10%, 20%, of that globally competitive salary. That’s the initial conflict.

Or as we said when it first broke:

Falsifying financial statements. Elsewhere we’re told that he was being paid tens of millions and yet the stock exchange was being told that it was less than that, perhaps half of that. Yes, misleading an exchange, thus investors, is a crime and should be one. But why? Why do this? Now I must move off into the world of pure speculation. This is from a universe which isn’t exactly ours in fact. Entirely made up even. But Japanese executives are, by international standards, remarkably low paid. Indeed people do remark on it, why should those Anglo execs get paid so much when the Japanese don’t pay captains of industry 300 times what the average worker gets? The answer being that Nippon execs get paid in something else, social approbation. The grand fromage of a Japanese firm is royalty. Compensation for his position is, within that society, just as high as for similar talent elsewhere, it’s just distributed differently.

But if you’re a foreigner running a Japanese company then that cultural approbation inside Japanese society isn’t of all that much value to you. So, we can imagine some foreigner coming in and expecting something like those Anglo rewards – the weighting toward pure cash. That then runs smack into that cultural problem. The company’s listed on the Japanese exchange. Yes, cultural expectations do matter. Paying that 300 x multiple simply won’t go down well. Paying 10x what other CEOs get won’t. So, what to do, how to balance these expectations? Pay the cash and publicly report something more culturally appropriate.

Thus what the company agreed – assuming it had – to pay him as pension isn’t the point at issue at all. It’s what the company told the stock exchange it was willing to pay him as pension which is.

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BarksintheCountryMatt Ryan Recent comment authors
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Matt Ryan
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Matt Ryan

So Tim, the Japanese exec gets a large part of his compensation from societal respect rather than financial compensation but Japanese firms under-perform their Western counterparts.

So is it financial compensation that makes the difference, is the societal respect not enough to make the execs successful or is it something else (promote on time served rather than talent)?

BarksintheCountry
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BarksintheCountry

So why is Carlos either in jail or under supervision if the company misreported to the authorities. Does Japan have a SarBox making a distant executive responsible for minutia reported to bureaucrats?