CEO Insights Magazine

In consulting services, delivering invaluable insights into various aspects of an enterprise necessitates a resilient strategy. A leader must be adaptable to drive revenue generation while fostering steadfast customer loyalty. Pay Governance functions as an independent advisory firm specializing in executive compensation. The firm's primary focus revolves around providing expert counsel on developing incentive compensation programs to attract, retain, and motivate executives to enhance long-term shareholder value. As Managing Partner of Pay Governance Japan, Naohiko Abe emerges as a pivotal force within the industry. Leveraging extensive experience and profound insights into the field, he spearheads success on a substantial scale.

In a candid interview with us, Naohiko shared with us his professional background, his contributions to the industry, and his goal for the future. He also shed some light on his personal life.

Can you provide a concise overview of your professional history and experiences? Additionally, what drives your daily routines and keeps you motivated?

With a pioneering role in executive compensation consulting in Japan since the early '90s, I gained several years of valuable experience at KPMG, Towers Perrin and Pay Governance executive compensation consulting division, collaborating with U.S. colleagues. Motivated by Japan's economic challenges in the '90s, I transitioned to the executive compensation consulting department to introduce Western-style incentive programs for positive changes in Japanese companies. With about 30 years in the industry, I firmly believe well-designed incentive compensation programs drive substantial behavioral changes at both individual and organizational levels.

Can you share the significant milestones in your journey thus far? Also, what guiding principles or success strategies consistently lead you to positive outcomes?

As the head of Towers Perrin Tokyo executive compensation consulting unit in 2002, I was nominated as the first Japanese/Asian Principal (Partner) in the global executive compensation group. All other partners were Caucasians until my promotion.

During my period in the early 2000s, we served numerous clients. I played a crucial role in supporting Japanese subsidiaries in the U.S. involved in mergers and acquisitions, guiding the development of Western[1]style incentive compensation programs for American and European executives. My success stemmed from the unique position of being the first western style executive compensation consultant in the market, presenting a distinctive advantage. Collaborating with U.S. and European colleagues allowed me to provide cutting edge and high-quality services to Japanese firms. My success mantra revolves around the principle of 'pay for performance'. This perspective, emphasizing seniority-based compensation, stood out in contrast to the Japanese model of long-term employment and team spirit. Advocating for 'pay for performance' has been a consistent mantra in my client interactions.

Can you share insights into the distinctive experiences provided by Keio University in Japan and what non-academic lessons you gained from your time on campus?

Keio University has shaped my character with its emphasis on 'independence of mind and self-respect'. The university fosters a unique spirit that stands apart from other institutions, encouraging individuals to believe in themselves. This philosophy has influenced my approach in the Japanese market, where I strive to undertake entirely distinctive initiatives. While some may view this as a Western approach, I appreciate this mindset without completely abandoning Japanese culture or traditions. The university's commitment to independence and self-respect, echoed by Fukuzawa[1]Sensei, founder of Keio University, has profoundly impacted me. My experiences during my seven years in high school and university, guided by this philosophy, significantly contributed to my personal growth. This perspective has translated into my career at Towers Perrin and Pay Governance, where, over the past 30 years, I've engaged in diverse activities, asked numerous questions, and delved into client reports, contributing to a unique approach not commonly found in Japan.

How do you characterize Pay Governance Japan Corporation and its present standing in the market?

Pay Governance is the pioneer of independent executive compensation consulting in Japan as well as in US, distinguishing itself from many human resource consulting firms that offer a broader range of services. Unlike those firms, Pay Governance exclusively focuses on executive compensation, providing unbiased advice to compensation committees. Being truly independent, the consultants don't engage in managing or offering services as a company. This independence ensures that the compensation committee receives impartial and shareholder-friendly guidance just like Board of Directors and compensation committee. The potential conflicts so called 'Agency Problems' between management and the compensation committee, inherent in agency problems, are addressed by having an independent consultant. This uniqueness allows Pay Governance to support the compensation committee in designing incentive programs to help long-term shareholder value creation and management compensation.

Where are you aiming to go in the future?

I intend to focus on the developments in the next five years since I transferred to Japan in 1997. Initially involved in a Japanese government-supported program for stock option deregulation, I aimed to shift companies towards clarity and innovation. Despite implementing various equity compensation programs such as RSU and PSU, progress has been gradual. Recognizing the slow transformation in Japanese companies and no Japanese company is listed of the top 10 the global market cap by now while 6 companies were listed in 1989. I plan to aid small ventures in developing incentive programs, aiming to investing for lower consulting fees for foster innovation in Japan.

Naohiko Abe, Managing Partner, Pay Governance Japan Corporation

In the Japanese market, Naohiko Abe is acknowledged as a trailblazing consultant specializing in executive compensation and incentive design. Over decades, his extensive expertise has been sought by Boards of Directors and senior management, particularly in designing impactful total executive reward programs.