Corporate Governance and Executive Compensation: Evidence from Japan

Lawmakers around the world are now urging corporations to adopt governance and executive pay standards drawn largely from the American corporate law context. Yet little is known about how corporate governance actually influences executive compensation decisions outside of the United States-and whether adoption of these standards is likely to be desirable for investors abroad. In this Article, we take advantage of a recent change in Japanese law to provide the first direct empirical evidence on executive pay in Japan. The evidence provides striking detail on the amount and structure of Japanese executive compensation. The data point to a previously unappreciated link between corporate governance and executive pay in Japan and indicate that several trends familiar to the U.S. compensation landscape have begun to take hold in Japanese firms. Our findings suggest that lawmakers and firms should take careful account of the relationship between governance and pay before importing governance standards from abroad