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Nissan's Ghosn crisis

Ghosn failed to report $36m in stock-linked compensation

Sources say Nissan chairman insisted the pay did not need to be reported

Carlos Ghosn allegedly told Nissan insiders that part of his compensation package did not need to be included in annual securities reports, sources say.

TOKYO -- Nissan Motor chief Carlos Ghosn received share price-linked incentive compensation of about 4 billion yen ($35.6 million) over a five-year period that went unreported in the automaker's securities reports, sources said on Tuesday.

Nor did the reports mention compensation estimated to be between 100 million yen to 150 million yen that Ghosn received from Nissan's overseas subsidiaries, the sources said.

Nissan's one-time savior was arrested on Monday on suspicion of financial misconduct.

It appears that the special investigation squad of the Tokyo District Public Prosecutors Office has learned Nissan's chairman received these amounts and judged they should have been recorded in the securities reports. Prosecutors arrested Ghosn based on these reports, alleging that Ghosn's undisclosed compensation violates the Financial Instruments and Exchange Act.

In all, about 5 billion yen in compensation went unreported over the five years beginning with the fiscal year through March 2011, the sources said.

According to the sources, Nissan shareholders in June 2003 approved the introduction of a share price-linked executive compensation plan called stock appreciation rights (SAR), the value of which rises when the company's share price increases.

While stock options become shares when employees exercise them, SAR packages pay cash, the amount of which depends on how much shares rise from where they were at the time the rights were issued.

Nissan shareholders approve how many of these rights can be granted, but it was Ghosn who would decide how they were allocated, the sources said.

The securities report filed for the year through March 2011 names seven executives who received compensation of 100 million yen, detailing how much each made. Of the seven, six were assigned SARs worth from 28 million yen to 42 million yen. It does not mention Ghosn receiving any SAR-linked pay.

Likewise, the next four annual reports indicate executives other than Ghosn were granted SAR compensation.

The sources said Nissan insiders noticed that there was no mention of SAR pay going to Ghosn and called for inclusion of the information. But according to the sources, Ghosn and Greg Kelly, a representative director who was also arrested on Monday, insisted that such disclosures were unnecessary and continued the practice.

This poses questions as to the effectiveness of Nissan's governance structure, which failed to properly flag the practice and stop the concealment.

The 100 million yen to 150 million yen that Ghosn also received from a Dutch subsidiary until 2017 also went undisclosed in the annual reports.

Ghosn and Kelly are suspected of disguising Ghosn's compensation in the reports. Ghosn actually received about 10 billion yen over the five-year period.

Nissan said its internal investigation found Ghosn also misappropriated investment funds for private purposes and mishandled company money.

Ghosn is also alleged to have made an overseas subsidiary purchase luxurious homes for his private use.

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