Overview of the executive compensation system

The compensation system for directors (other than outside directors) consists of fixed base salary, performance-based compensation as an incentive linked to short-term and mid-term business results, and restricted shares as compensation as a long-term incentive. However, the Director and Chairperson of the Board is paid only the base salary and restricted shares as compensation in light of the role as non-executive chairperson of the board of directors. The compensation system for outside directors and A&SB members consists only of base salary in the light of their supervisory roles.(Note) 1

With regard to performance-based compensation linked to mid-term business results, the evaluation for fiscal years 2023 to 2025, has already been completed. However, the evaluation for fiscal 2026 will be suspended, as this year is dedicated to focusing on group management reform. Therefore, there will be no performance-based compensation for the mid-term period including fiscal 2026. The Company will consider appropriate performance-based compensation and share-based compensation for mid-term periods beginning in fiscal 2027, taking all relevant factors into account.

As of the submission date of this report, the compensation system is as outlined below.

Element of compensation

Overview

Relative size(Note) 2
(Where the weight of base salary is 1.0)

Base salary
(Monetary compensation)

  • Fixed compensation that is paid every month. Its amount is determined according to the role, the Company’s management environment and other companies' movements.

1

Performance-based compensation
(Monetary compensation)

Short-term incentive

  • An incentive to achieve the goals described in new management plans after the transition to the operating company system of the Panasonic Group.
  • The target annual amount is set at a certain percentage of the base salary and the paid amount is determined in consideration of financial and non-financial evaluation elements.
  • The short-term incentive is paid every month. Evaluations in terms of percentage target achievement, etc. in the relevant fiscal year are reflected in the amount paid in the following fiscal year.
  • The mid-term incentive is suspended.

0.55

Mid-term incentive

-

Restricted shares as compensation
(Non-monetary compensation)

  • Compensation in the form of shares with transfer restrictions are lifted immediately after termination of service as a director of the Company etc.
  • Paid as an incentive to enhance corporate value in a sustainable way and further promote value sharing with shareholders through continuous shareholding until termination of service.
  • With its relative size set according to the role, this compensation is paid every year, within a certain period, after the closure of the annual shareholders meeting.

Representative Director and President Executive officers

0.75

Average for directors

0.25

Element of compensation

Overview

Relative size(Note) 2
(Where the weight of base salary is 1.0)

Base salary
(Monetary compensation)

  • Fixed compensation that is paid every month. Its amount is determined according to the role, the Company’s management environment and other companies' movements.

1

Performance-based compensation
(Monetary compensation)

Short-term incentive

  • An incentive to achieve the goals described in new management plans after the transition to the operating company system of the Panasonic Group.
  • The target annual amount is set at a certain percentage of the base salary and the paid amount is determined in consideration of financial and non-financial evaluation elements.
  • The short-term incentive is paid every month. Evaluations in terms of percentage target achievement, etc. in the relevant fiscal year are reflected in the amount paid in the following fiscal year.
  • The mid-term incentive is suspended.

0.55

Mid-term incentive

-

Restricted shares as compensation
(Non-monetary compensation)

  • Compensation in the form of shares with transfer restrictions are lifted immediately after termination of service as a director of the Company etc.
  • Paid as an incentive to enhance corporate value in a sustainable way and further promote value sharing with shareholders through continuous shareholding until termination of service.
  • With its relative size set according to the role, this compensation is paid every year, within a certain period, after the closure of the annual shareholders meeting.

Representative Director and President Executive officers

0.75

Average for directors

0.25

(Notes)

  1. The Chairperson of the Board (outside director) will receive an allowance for their service as Chairperson of the Board, and the members of the Nomination Advisory Committee and Compensation Advisory Committee will receive a membership allowance (however, this allowance will not be paid to committee members who are outside directors).
  2. The relative size is based on the target annual amount.

Mechanism of performance-based compensation, etc.

The actual amount paid as performance-based compensation varies according to financial and non-financial evaluation elements (selected according to the key indicators for the group management reform in fiscal 2026) where the target annual amount is set at 100%.
The target annual amount is paid when the individual director’s targets are achieved.

Short term incentive
Each of the financial and non-financial evaluation elements varies independently within the range of 0% (min.) and 200% (max.), and the total paid amount varies within the range of 0% (min.) and 200% (max.).

Evaluation elemen

Short-term incentive

Indicators and items

Range of the actual paid amount

Weight

Financial
(Consolidated business performance)

  • Adjusted operating profit(Note) 1
  • ROE

0% to 200%

50%

Non-financial(Note) 2

  • Elimination of serious accidents, promotion of strict compliance, and respect for human rights
  • Environmental contribution
  • Human resources strategies
  • Operation KPIs relating to enhancement of competitiveness

0% to 200%

50%

Total weight

100%

Evaluation elemen

Short-term incentive

Indicators and items

Range of the actual paid amount

Weight

Financial
(Consolidated business performance)

  • Adjusted operating profit(Note) 1
  • ROE

0% to 200%

50%

Non-financial(Note) 2

  • Elimination of serious accidents, promotion of strict compliance, and respect for human rights
  • Environmental contribution
  • Human resources strategies
  • Operation KPIs relating to enhancement of competitiveness

0% to 200%

50%

Total weight

100%

(Notes)

  1. Calculated by deducting the cost of sales and selling, general and administrative expenses from net sales.
  2. Set in light of important assignments to each role and each job duty (presented below are some of the specific indicators).
    • Elimination of serious accidents, promotion of strict compliance, and respect for human rights: The numbers of serious accidents, high-risk compliance issues, and human rights issues, as well as the status of actions taken to improve these numbers.
    • Environmental contribution: CO2 reduction in our value chains.
    • Human resources strategies: Scores on "Unlock indicators" in employee opinion surveys (reflecting responses to questions about challenge and performance levels), and the status of actions taken to improve these scores.
    • Operation KPIs relating to enhancement of competitiveness: Strengthening of procurement and logistics capabilities, DX of business processes, increases in the number of patents.

Non-financial evaluation process

For all directors, other than the Representative Director and President, targets are set and evaluations against them are performed subsequent to interviews with the Representative Director and President. More specifically, distinct indicators and targets relating thereto are set after interviews at the beginning of each relevant fiscal year, and evaluations are performed during interviews following completion of the year, after confirming progress toward the targets during mid-term interviews.

Given his/her position as the person who has ultimate responsibility for the entire business management of the Panasonic Group, the evaluation of the Representative Director and President is synchronized with the representative indicators and progress toward indicator target achievement used to evaluate all directors other than the Representative Director and President, executive officers not serving concurrently as directors, and the presidents of major operating companies of the Panasonic Group.

In order to secure the objectivity and transparency of the evaluations, the specific indicators and an overview of the evaluations are reported to the Compensation Advisory Committee.

Malus and clawback provisions

Effective from fiscal 2026, malus and clawback provisions have been introduced in order to encourage Company directors to take appropriate actions and to prevent, detect, and correct serious compliance issues. If a serious compliance issue arises (i.e., one that may materially affect the financial condition, reputation, or brand value of the entire Panasonic Group) or if the financial statements for the entire Panasonic Group need to be amended in any material respect, these provisions allow the Company to claim a refund of previously paid compensation (clawback provisions) or reduce the compensation to be paid (malus provisions). These provisions will be introduced to the executive officers of the Company and the presidents of its major operating companies, as well as its directors.

Process for determining the amount of compensation

The optional Compensation Advisory Committee, majority-staffed and chaired by independent Outside Directors, deliberates on the appropriateness of the Company’s policy and system for determining compensation of Directors and reports the results to the Board of Directors. The Board of Directors makes a resolution on the policy for determining the compensation based on the report.

As to the annual amounts of base salary and incentive pay to be paid and the annual number of shares to be allocated to each recipient as restricted stock compensation, the Compensation Advisory Committee examines whether these amounts and numbers are appropriate in light of the policy for determining the compensation and reports the results to the Board of Directors. The Board of Directors has left the determination on the compensation solely to the Representative Director, President and Chief Executive Officer of the Company, who objectively comprehends and supervises overall business execution of the Panasonic Group. As the Representative Director, President and Chief Executive Officer of the Company determines the details of base salary, incentive pay, and restricted stock compensation to each recipient in accordance with the results of deliberation at the Compensation Advisory Committee, the Board of Directors believes this decision is in line with the policy for determining compensation.

The same compensation system, as the one applicable to the Company’s directors (other than outside directors) applies basically to the Company’s executive officers not serving concurrently as directors. A compensation system similar to the one applicable to the Company’s directors (other than outside directors) applies to the presidents of the Company’s major operating companies, given their roles in enhancing the corporate value of the Panasonic Group. The validity of all these systems is discussed by the Compensation Advisory Committee.