GungHo Rejects Shareholder Demands to Cut CEO Pay Amid Declining Profits

KeyTakeaways:

GungHo rejects shareholder demands to reduce CEO pay despite declining profits.Strategic Capital proposes changes to GungHo’s executive compensation policy.GungHo adjusts shareholder return policies and includes independent directors in pay decisions.

GungHo Online Entertainment, a prominent Japanese video game developer, has rejected shareholder proposals calling for adjustments to its CEO’s compensation. The proposals, spearheaded by investment firm Strategic Capital, criticized CEO Kazuki Morishita’s salary and questioned the company’s financial performance. 

Despite declining profits and concerns over transparency, GungHo’s board of directors unanimously voted against the suggested changes.

Strategic Capital, which holds a 5.4% stake in GungHo, raised concerns about Morishita’s salary increase over the past decade. The firm noted that while the CEO’s pay rose from 120 million yen to 340 million yen (about $2.2 million), GungHo’s operating profits plunged by 69%. 

Despite the considerable difference in the two companies’ size and market presence, the firm also drew attention to the significant pay disparity between Morishita and Nintendo’s CEO. Additionally, Strategic Capital proposed a comprehensive review of GungHo’s executive remuneration policy, suggesting greater scrutiny of the pay packages for top executives.

GungHo Defends CEO Compensation and Leadership

In its defense, GungHo pointed out that Morishita has been at the helm for over 20 years, playing a pivotal role in developing the company’s flagship titles, including the successful Ragnarok Online and Puzzle & Dragons. 

The company also addressed the challenges in replicating Puzzle & Dragons’ success, citing the highly saturated mobile gaming market. GungHo emphasized that it was unrealistic to expect another game of similar scale to emerge given the industry’s rapid evolution since the game’s peak.

Modifications to Shareholder Return and Remuneration Policies

While rejecting the shareholder proposals, GungHo revised its shareholder return policies. The company adjusted its approach to dividends and share buybacks, focusing more on returning value to its investors. 

Furthermore, GungHo modified its executive compensation framework, now involving independent directors in the committee responsible for determining CEO pay. These adjustments come amid the company’s declining financial performance, as reflected in the fiscal year 2024 financial statements.