Japanese firms catching on to stock options

An increasing number of Japanese corporations are introducing de facto “stock option” arrangements so their executives and employees can take advantage of a highly lucrative system available to many U.S. corporate executives.

On May 6, well-known firms Daiwa Securities Co. and Advantest Corp. announced plans to introduce such systems. Toyota Motor Corp. and Orix Corp. have also expressed an interest in similar schemes.

The stock option — a company perk that gives executives or employees the right to buy shares of company stock at predetermined prices — is common in the U.S. but illegal in Japan. The incentive is for employees to work harder, bringing profits to the company and in turn raising the value of its stock.

Once the stock appreciates beyond the incentive price, workers can exercise the option to buy stocks at that price, regardless of how much it has risen beyond the incentive goal. If the company’s performance is good, workers can turn a profit by buying stock below market value and selling it later.

The announcement by Daiwa Securities on May 6 made it the first Japanese brokerage to consider introducing such a system. The ban blocking the use of stock option systems is expected to be lifted by the end of fiscal 1997, which started April 1.

A bill to amend the Commercial Code and introduce the system is expected to be approved during the current ordinary Diet session, which closes June 18. Currently, stock options are banned to prevent companies from manipulating stock prices.

Speaking at a news conference, Daiwa Managing Director Takeshi Nojima said the company has been discussing the possible introduction of the system in a positive manner and hopes to broach the issue at a general shareholders meeting next month. Advantest said May 6 that it will give all its employees an opportunity to purchase warrants to acquire shares in the company.

The arrangement has been devised as a de-facto stock option to get around the current legal ban. The semiconductor-testing equipment maker plans to issue 4.3 billion yen worth of bonds with warrants on May 30 for maturity on May 30, 2001. After buying back all the warrants, Advantest will sell them to its executives and employees, including those at subsidiaries. Officials of Advantest, an affiliate of Fujitsu Ltd., said the company is introducing the incentive plan to help raise the morale of employees and thus enhance its corporate performance.