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Nissan-Renault alliance

Nissan CEO on shaky ground after inflated pay scandal

Misconduct raises questions over Saikawa's fitness to lead Japanese automaker

Nissan CEO Hiroto Saikawa admitted stock plan change was inappropriate but denied involvement.

TOKYO -- Nissan Motor CEO Hiroto Saikawa, who on Thursday admitted to receiving improper compensation, may see his claim to lead the Japanese automaker fatally undermined, given that the company's former chairman, Carlos Ghosn, was ousted for similar reasons.

Saikawa is committed to restructuring the company, cutting its payroll by 12,500 by March 2023. The CEO's misstep may prompt Nissan shareholders to follow the lead of Nippon Life Insurance, an institutional investor that announced it voted against retaining Saikawa at Nissan's annual shareholders meeting in June. Saikawa's leadership is also likely to be questioned by Renault, Nissan's French partner and largest shareholder.

Saikawa acknowledged that he improperly received 47 million yen ($443,000) in extra compensation after the terms of a performance-based bonus were adjusted. The admission follows the release of findings by in-house investigators. Under the stock appreciation rights scheme, introduced to raise morale among Nissan executives, directors were eligible for bonuses if the company's share price performed well.

The Nissan CEO denied he was involved in a scheme to inflate his pay, saying he and several other directors had left the matter entirely up to former Nissan Representative Director Greg Kelly, who is now charged, and the company's secretariat.

Saikawa said he was "deeply sorry for [causing] suspicion," and added that he would "repay any money that needs to be repaid to the company." He also blamed Ghosn for the compensation system.

Nissan will postpone the sale of 250 billion yen in bonds in response to the internal probe, Nikkei has learned Thursday. The company had planned to set conditions of the sale of four separate bonds with maturities of three to 10 years, but it suspended the flotation due to the "circumstances of the issuer."

Saikawa's position was already precarious before the misconduct was revealed. Nippon Life on Tuesday disclosed that it had voted against his reappointment as director the shareholders meeting, citing "deplorable events." The insurer voted in favor of all other proposals from the Nissan board, including the establishment of committees composed mainly of outside directors and the selection of other directors.

According to a report filed by Nissan in June with the Kanto Local Finance Bureau, Saikawa had the lowest support among the 11 directors appointed at the meeting. While the other 10 candidates received yes votes of nearly 90% -- Renault Chairman Jean-Dominique Senard received 99% approval -- Saikawa received only 78% support.

"This scandal justifies the investors who voted against Saikawa at the general meeting," said Seiji Sugiura, senior analyst at the Tokai Tokyo Research Institute. While the scheme and the details of the financial misconduct remain murky, the wrongdoing "accelerated the centrifugal force for Saikawa's position as CEO," Sugiura said. "The return of any misdirected compensation will not help regain trust from employees and investors," he said.

Leading proxy advisory firms Glass Lewis and Institutional Shareholder Services had previously recommended that shareholders reject Saikawa's reappointment, saying they could not confidently support putting him in an oversight position over other directors. Not only did Saikawa, then a representative director, fail to discover Ghosn's alleged financial misconduct over an extended period, the company itself has now been charged with understating Ghosn's compensation.

Nissan's earnings picture also looks grim. The carmaker announced in July a 99% drop in operating profit in the April to June quarter, versus the previous year, on the back of weak sales in North America and emerging markets. Nissan will cut 6,400 jobs by the end of this fiscal year and reduce capacity by 600,000 vehicles at 14 plants, mostly in emerging countries, through fiscal 2022.

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