OMRON has established a solid governance system aimed at enhancing integrity and transparency of its management practices and to become more responsive to changes in the business environment.

To monitor and ensure that directors are properly functioning to represent OMRON’s shareholders and other stakeholders, two out of seven board members are outside directors. Also, three out of four corporate auditors are outside auditors.

Emphasizing the independence of these outside directors and auditors, OMRON has specified strict criteria for qualification of candidates, which consist of seven requirements that are even more exacting than the regulations of Japanese Corporate Law. For example, candidates for outside directors or the organizations to which they belong must not have assumed the role of representative or employee of the independent accounting auditor for the OMRON Group for five years prior to the nomination. They also may not be a principal shareholder of the OMRON Group.

To facilitate business operations, OMRON has adopted an executive officer system, which allows clear separation of management oversight and business execution. As such, the President is the only director who is also tasked with business execution. The internal company system empowers senior executives of each business unit with more authority for quicker decision-making and more streamlined business operations.

Three advisory committees (personnel, compensation and CEO selection) have been established to enhance objectiveness and transparency for nomination, promotion and compensation of directors/executive officers as well as nomination of the President.

In June 2008, OMRON established a Corporate Governance Committee which is intended to examine the ideal style of corporate governance for OMRON in order to further improve integrity and transparency of its management practices.

Corporate governance structure

Timeline of activities intended to enhance corporate governance

To allow the Board of Directors to monitor business practices from a position that represents OMRON's shareholders and other stakeholders, the number of outside directors was increased in 2003, now numbering two out of seven board members. Also, three out of four corporate auditors are outside auditors.

Emphasizing the independence of these outside directors and auditors, OMRON has specified strict criteria for qualification of candidates, which are even more exacting than the regulations of Japanese Corporate Law. For example, candidates for outside directors or the organizations to which they belong must not have assumed the role of representative or employee of the independent accounting auditor for the OMRON Group for five years prior to the nomination. They also may not be a principal shareholder of the OMRON Group, a director of any principal partner, or have kinship with any current director of the OMRON Group.

Criteria for Qualification of Candidates(Only requirements exceeding those stipulated in Japanese Corporate Law are listed.)
Candidates for outside directors or outside corporate auditors must not:

1. Have assumed the role of representative or employee of the independent accounting auditor for the OMRON Group for five years prior to the nomination.
2. Be a director, corporate auditor, executive officer and/or employee of any principal shareholder of the OMRON Group (which holds shares that represent one-third or more of total voting rights).
3. Be a director, auditor, executive officer and/or employee of any principal partner of the OMRON Group (in which sales to the OMRON Group are ranked among the top ten.)
4. Receive yearly compensation in excess of 10 million yen from the OMRON Group besides compensation for directors or corporate auditors.
5. Have kinship (including spouse, children, parents or siblings) with any current director, corporate auditor or executive officer of the OMRON Group.
6. Have mutually dispatched directors and/or corporate auditors between the candidate's company/organization and the OMRON Group.
7. Have any other interest or stake in the OMRON Group that is not suitable for performing the duties of an outside director or outside corporate auditor.

Note:

• The aforementioned "OMRON Group" refers to OMRON Corporation and its subsidiaries. In the case of a transfer of an outside director from a principal position (including resignation), the director should be re-evaluated based on the qualification criteria.

To determine the compensation structure for directors, corporate auditors and executive officers, a Compensation Advisory Committee, chaired by an outside director, has been established. The Chairman and President do not participate in the discussion among committee members, which consist of inside and outside directors. This ensures objectivity and transparency in decisions regarding compensation for executives.

＜Basic Principles of Compensation for Directors＞

• OMRON will implement a compensation system that enables recruiting (employing) and securing talented people as executives.
• The compensation system shall be motivational for directors so as to contribute to the long-term maximization of OMRON's corporate value.
• The compensation system shall be transparent, fair and reasonable enough to ensure accountability to shareholders and other stakeholders.
  • To guarantee transparency, fairness and reasonableness of the compensation for individual directors, the Compensation Advisory Committee shall be consulted regarding all directors' compensation.
• A compensation structure suitable for each director's role and responsibilities shall be established with clearly determined objectives of compensation.

＜Basic Policy for Directors' Compensation＞(Note)

• Compensation for directors consists of basic compensation (monthly fee), bonuses and stock options.
  • OMRON will provide basic compensation for directors in order to recruit (employ) and secure talented people.
  • OMRON will provide bonuses for directors as performance-based incentives while emphasizing yearly business results.
  • Aiming to reflect medium to long-term business results in compensation for directors, stock options will be granted as compensation that links with enhancement of corporate value (stock value).
  • Outside directors will be provided with basic compensation only without granting bonuses and/or stock options which reflect business results.
• The total amount of bonuses for directors will not exceed 1% of the net income recorded for the respective fiscal year.
• No retirement benefits will be granted.
• The compensation standards for directors will be established by taking into consideration other companies' standards, as determined by an external research agency.

＜Basic Policy for Corporate Auditors' Compensation＞

• By taking their roles and responsibilities into consideration, compensation for corporate auditors will consist of basic compensation only (a monthly fee) intended to recruit (employ) and secure talented people.
• No retirement benefits will be granted.
• The compensation standards for corporate auditors will be established by taking into consideration other companies' standards, as determined by an external research agency.

Note: In fiscal 2008, OMRON will launch a stock ownership-based compensation system to replace the stock option plan. With the stock ownership-based compensation system, directors are provided with a fixed monthly fee, and they can use that amount to purchase the company's shares every month through the director stock ownership group. The directors are required to hold the shares they purchase during their term of office.