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    1. Compensation for Board of Directors and Audit & Supervisory Board Members

      Last update: June 26, 2019

      Policies and procedures in determining the compensation of Directors and Audit & Supervisory Board Members
      [CGC Principle 3.1(iii)]

      Purpose of the establishment of Policy on Compensation of Directors and Audit & Supervisory Board Members

      (1) Development of compensation of Directors and Audit & Supervisory Board Members based on the “Basic Views on Corporate Governance”

      The Company considers corporate governance to be a system for sustainable growth by establishing and maintaining a sincere management structure and continuously increasing the Group’s corporate value over the medium and long term in order to ensure the trust of various stakeholders, based on the Corporate Creed of the Company.Based on this basic views on corporate governance, the Company considers a compensation system for Directors and Audit & Supervisory Board Members to be one of the important mechanisms to further increase the motivation and morale of Directors and Audit & Supervisory Board Members, and to appropriately take risks for the sake of the continued growth of medium- and long-term corporate value and the sustainable growth of the Group, and constructs and operates this system.

      (2) History of compensation system of the Company and introduction of a new stock-based compensation system

      The Company has already abolished the severance payment system for Directors and Audit & Supervisory Board Members, and granted bonuses and stock options for stock-linked compensation to Directors as performance-based compensation.
       However, the Board of Directors and the Nomination and Compensation Committee have continuously reviewed the effective compensation system in line with the Company’s business status from the viewpoint of (1) above.
       Through these examinations, for the purposes of further clarifying the link between the compensation of Directors and Audit & Supervisory Board Members and business performance and stock price, enhancing the motivation to contribute to the improvement of medium- and long-term corporate value, and sharing interests with shareholders, the Company has decided to establish a new “Policy on Compensation of Directors and Audit & Supervisory Board Members,” including the transition from the existing stock options for stock-linked compensation to a new stock-based compensation system more closely linked to medium- and long-term business performance.

      ◎ The deliberation process of the Nomination and Compensation Committee and the Board of Directors regarding introduction of the new stock-based compensation system (November 2018 to April 2019)
      The Board of Directors and its advisory body, the Nomination and Compensation Committee, cooperated in continued deliberations and examinations, and the Board of Directors resolved to amend the Policy on Compensation of Directors and Audit & Supervisory Board Members, and to introduce the new stock-based compensation system.

      The deliberation process of the Nomination and Compensation Committee and the Board of Directors regarding introduction of the new stock-based compensation system

      Seven & i Holdings Co., Ltd. Policy on Compensation of Directors and Audit & Supervisory Board Members

      1. Basic Views on Compensation for Directors and Audit & Supervisory Board Members

      The Company considers the compensation system for Directors and Audit & Supervisory Board Members of the Company (in this Policy, “officers”) to be “an important mechanism to appropriately take risks for the sake of the continued growth of the medium- and long-term corporate value and sustainable growth of the Group, based on our basic views on corporate governance,” and builds and operates the system based on the points set forth below.

      ◇Emphasis is placed on the link between the financial results and corporate value of the Group, and establishing a system that further increases the motivation and morale to contribute to improved financial results and increased corporate value continuously over the medium to long term.

      ◇To secure highly capable human resources who will support enhanced corporate governance through appropriate oversight and auditing of operational execution, provide compensation levels and systems commensurate with responsibilities.

      ◇Ensure the objectivity and transparency of the compensation decision process, and establish a compensation system trusted by all stakeholders.

      ◇With regard to the design of a specific compensation system for officers, continue to consider tailoring it more appropriately in light of future trends in legal systems and society.

      2. Compensation Levels

      The levels of compensation for officers will be determined, taking into consideration various fundamentals in the business content and the business environment of the Company, with reference to the compensation levels of officers in major companies of the same size as the Company based on market capitalization and operating income levels, etc.

      3. Compensation Composition

      (1) Operating Directors

      (a) Compensation composition ratios

      The compensation composition ratios for operating Directors (*) are as follows:

      Compensation composition ratios

      * Calculated under the assumption that bonuses and stock-based compensation are based on a standard compensation amount.

      (b) Composition

      i) Fixed Compensation

      A fixed monetary compensation commensurate with the responsibilities of each position will be paid.

      ii) Performance-based compensation

      Short-term incentive compensation will be a performance-based compensation that varies based on the company’s business performance and individual evaluations, etc., for the relevant fiscal year.

      iii) Stock-based compensation

      ? Medium- and long-term incentive compensation will be a performance-based and stock-based compensation that varies based on the company’s business performance and management indicators, etc. (the BIP Trust system will be the stock-based compensation system).

      ? Performance-based and stock-based compensation will enhance sharing profits and risks with our shareholders who have medium- and long-term perspectives by providing points during the term of office based on which shares will be delivered.

      ? It will vary between 0% and 200% depending on the achievement level of targets, etc.

      ? The Company has already transitioned from a stock options for stock-linked compensation system to the new stock-based compensation system, in conjunction with the approval of the proposal for the introduction of the new stock-based compensation system, at the Annual Shareholders’ Meetings held in May 2019. Therefore, going forward, the Company will not grant any new share subscription rights as stock options for stock-linked compensation.

      ? The KPIs for stock-based compensation are as follows. In order to incorporate medium- and long-term shareholder perspectives, consolidated ROE and consolidated EPS are used as indicators, and in order to evaluate achievement through strengthening the profit-making capability of the main business, consolidated operating income is also used together as a KPI.

      Key Performance Indicators for stock-based compensation

      KPIs Ratio Purpose of evaluation
      (a) Consolidated operating income 40% Evaluation of the degree of improvement of the capability for making profit
      (b) Consolidated ROE 40% Evaluation of the efficiency of profitability
      (c) Consolidated EPS 20% Evaluation of profitability and corporate value

      ? The Company, aiming for corporate value and social value at the same time, will consider adding a non-financial indicator, such as the amount of CO2 emissions, to “KPIs for stock-based compensation.”

      ? When evaluating KPIs, the range of compensation of Representative Directors is set wider by using different payment coefficients from other Directors, so that the compensation of Representative Directors will be more affected by the link to performance.

      (2) Outside Directors and Audit & Supervisory Board Members

      (a) Compensation composition ratios

      The compensation composition ratios for Outside Directors and Audit & Supervisory Board Members are as follows:

      Compensation composition ratios

      (b) Composition

      Fixed Compensation

      With an emphasis on further strengthening the independence of Outside Directors and Audit & Supervisory Board Members from management, the compensation of Outside Directors and Audit & Supervisory Board Members consists only of fixed compensation. Performance-based compensation (bonuses and stock-based compensation) will not be paid to Outside Directors and Audit & Supervisory Board Members.

      4. Compensation Governance

      (1) Nomination and Compensation Committee

      The Company has established a nomination and compensation committee (the “Nomination and Compensation Committee”) to ensure objectivity and transparency in the procedures for deciding the compensation of Officers, etc. (referring in this policy to Directors, Audit & Supervisory Board Members, and executive officers). The committee’s chair and half of its members are Independent Outside Directors.

      (2) Method of determining compensation

      Through deliberations by the Nomination and Compensation Committee, the amount of compensation of Directors is determined, based on this Policy, in accordance with the evaluation of each Director’s function, degree of contribution, and the Group’s results, as well as the degree of achievement of KPIs.

       The compensation of Audit & Supervisory Board Members is determined through discussions by the Audit & Supervisory Board.

      5. Compensation Limit for Directors and Audit & Supervisory Board Members

      The amount of compensation of officers is decided within the following compensation limits, determined at the Shareholders’ Meeting.

       The Company has already abolished the severance payment system for Directors and Audit & Supervisory Board Members, and no severance payments will be paid.

      (1) Directors

      ? Monetary compensation

      Not more than ¥1 billion per year (not including employee salaries paid to Directors who serve concurrently as employees)

      (Resolved at the 1st Annual Shareholders’ Meeting held on May 25, 2006)

      ? Stock-based compensation

      3 fiscal years/not more than ¥600 million (not more than ¥200 million per 1 fiscal year)

      Limit on the points granted per 1 fiscal year: 40,000 points (1 point = 1 common stock)

      (Resolved at the 14th Annual Shareholders’ Meeting held on May 23, 2019)

      (2) Audit & Supervisory Board Members

      ? Monetary compensation

      Not more than ¥200 million per year

      (Resolved at the 14th Annual Shareholders’ Meeting held on May 23, 2019)

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