ITOCHU Announces Introduction of "Managers of the Future" Reward Scheme

- Medium- and Long-Term Performance-Based Benefit Share ESOP -

March 11, 2015

ITOCHU Corporation (headquartered in Minato-ku, Tokyo; Masahiro Okafuji, President & CEO; hereinafter “ITOCHU”) announced that at the Management Meeting on March 11 it has decided to introduce a benefit share ESOP linked to medium- and long-term company performance for employees who hold a certain level of responsibility with the aim of raising awareness of participation in management as candidates for “Managers of the Future” who will carve out the future of the ITOCHU Group.

Background of the initiative

ITOCHU is proactively devising measures in an effort to further enhance corporate value by achieving in the near future a performance worthy of being called a member of the leading general trading company group. One such measure was the conclusion on January 20, 2015 of a strategic large-scale business and capital tie-up agreement with the CITIC Group, China’s largest state-owned conglomerate, and Thailand’s CP Group. The attainment of this goal will require us to pursue more efficient management as well as to steadily practice management from a medium- and long-term perspective.

In order to realize this, we have decided to introduce this scheme based on a new concept, which differs from the performance-based reward scheme introduced in 1999 in that it positions ITOCHU employees at the rank of Section Head or above who will be the key people responsible for future growth as candidates for “Managers of the Future”, in order to raise awareness of employees in respect of the enhancement of corporate value and encourage them to step up their contribution.

Outline of the initiative

The scheme is a trust-type employee incentive plan based on the U.S. Employee Stock Ownership Plan (ESOP) that uses the mechanism of issuing company shares to those employees who have fulfilled certain conditions. The outline of the scheme is as follows:

(1) Award 100 points (1 point = 1 share) to employees who are newly promoted to the rank of Section Head in the future.
(2) After that, award an additional 400 points when the employee is promoted to General Manager, and 500 points when the employee is promoted to divisional Chief Operating Officer.
(3) Multiply the share points awarded up to that point by a multiplier linked to the company’s consolidated results of the employee’s tenure after the first award of the share points, and deliver the company shares at retirement without compensation at a maximum of 10 times the awarded points (maximum 10,000 shares).

The feature of this scheme is that the number of shares issued varies significantly as it is linked to the management contribution of the individual and the company’s performance over the long term. It is believed that the scheme will raise awareness of participation in management for employees of Section Head rank and above, thereby encouraging them to participate in management that will contribute to the company’s corporate message of “I am One with Infinite Missions.” Further, it is believed that the increase of corporate value will enable the company to share the benefits with shareholders and various other stakeholders.

Diagram of scheme

(1)Formulate “share benefit regulations” by introducing the scheme as an employee fringe benefit
(2)Set up “Trust for money other than money trust (third-party benefit trust)”which shall make the target employee the beneficiary.
(3)Obtain shares for example by buying from share market using entrusted money.
(4)Distribute allotment for shares within trust.
(5)Appoint trust administrator in order to control trustee and safeguard employee profits. Voting rights not exercised during trust period.
(6)Award points in order to calculate shares to be issued in the future.
(7)Issue shares.

Schedule

The scheme is scheduled to be introduced from July 1, 2015 once the details have been worked out and the share benefit regulations and trust contract have been devised.