Corporate Governance

Establishment of the Director Compensation System

Evaluating the Effectiveness of the Board of Directors

Corporate Governance System

Basic Stance

Tokyo Electron regards the improvement of its corporate governance structures as important for achieving success in global competition and realizing sustainable growth. To that end, we have built a structure which utilizes to the maximum the worldwide resources we possess and have worked to incorporate a wide range of opinions to strengthen our management foundation and technology base, establishing a governance structure capable of ensuring that we attain global-level earnings power. We have established the Corporate Governance Guidelines* and outlined the corporate governance structures that we have developed and reinforced to date, in advance of other companies.
We use the Audit & Supervisory Board System, which consists of a Board of Directors and an Audit & Supervisory Board, and have achieved effective governance based on the supervision of management by the Audit & Supervisory Board.

The Corporate Governance Guidelines

Characteristics of Our Corporate Governance

A Board of Directors that is Independent and Diverse	Strengthening the Functions of the Executive Side	Advanced Initiatives Taken Ahead of Other Companies
Outside directors make up half of our corporate directors (Three outside directors and three inside directors) Two female directors among six corporate directors Outside directors make up majorities in the Nomination Committee and Compensation Committee, including their respective chairpersons	Introduction of a Corporate Officer system with corporate officers as the highest-level officers on the executive side of the Group Establishment of the Corporate Officers Meeting as the highest decision-making body on the executive side of the Group, and delegation of authority from the Board of Directors to the executive side	Introduction of stock-based compensation system for outside directors Introduction of Shareholding Guidelines for corporate directors, corporate officers and executive officers and Clawback Policies for executive directors and corporate officers

Changes in Corporate Governance (Since CY1998)

Outside Directors (ratio) Diversity (Female & Foreign Nationals) Corporate Directors & Executive Officers Director Compensation Nomination Committee Discretionary Committees Compensation Committee Evaluating the Effectiveness of the Board of Directors Sustainability related Disclosures

Corporate Governance Framework

Board of Directors	Audit & Supervisory Board	Nomination Committee	Compensation Committee
Composition Three inside directors and three outside directors Audit & Supervisory Board member and Corporate officers also attend, to share opinions and give reports Chairperson Inside director (non-executive) Number of Meetings 11 in fiscal year 2023	Composition Two inside Audit & Supervisory Board members and three outside Audit & Supervisory Board members Chairperson Inside Audit & Supervisory Board member Number of Meetings 7 in fiscal year 2023	Composition Two outside directors and one inside director Chairperson Outside director Number of Meetings 11 in fiscal year 2023 Deliberation Topics Appointment and dismissal of corporate directors and the CEO, candidates of independent outside directors, status of successor development, other topics	Composition Two outside directors and one inside director Chairperson Outside director Number of Meetings 10 in fiscal year 2023 Deliberation Topics The policy and the system for compensation received by Corporate Directors and executive officers of the Group, individual compensation amounts for the Representative Directors, other topics

Committees on the Executive Side

Committee Name	Main Composition	Purpose	Meeting Frequency
Business Ethics Committee	Executive officers in charge Division general managers, General managers (GMs) Presidents of relevant companies	Verifies the status of practice in accordance with the Code of Ethics Proposes and supports training and educational programs relating to business ethics Confirms compliance promotion activities	Twice annually
Sustainability Committee	Executive officers in charge General managers Presidents of relevant companies	Considers and formulates sustainability-related policies Sets and manages sustainability goals (short-, medium- and long-term) Implements company-wide projects (the environment, human rights, RBA, etc.)	Twice annually
Risk Management Committee	Executive officers in charge Risk owners of individual risks Presidents of relevant companies	Performs and shares information on company-wide risk management Establishes systems and mechanisms to investigate and counter risk scenarios for individual risk items in collaboration with risk owners	Twice annually
Information Security Committee	Executive officers in charge Officers in charge at relevant companies	Spreads awareness of information security strategies and policies Shares information on information security planning and the current situation	Twice annually
Export Trade Control Committee	Executive officers in charge Presidents of relevant companies	Promotes export compliance activities	Annually

Learn more

About Corporate Officers

As a leading company in the semiconductor production equipment industry, where technological innovation is rapid and market changes are active, we introduced our unique Corporate Officer system in June 2022 to further strengthen governance and implement quick decision-making agile operational execution. Corporate officers are the highest-level officers on the executive side within the Group; unlike executive officers, who have responsibility for particular areas, corporate officers have responsibility for the management of the entire company, taking the same perspective as the CEO. Corporate officers also attend Board of Directors meetings, where they give briefings on operational execution, to ensure that the Board of Directors is able to supervise the executive side in an appropriate manner, and that discussions at the Board of Directors meetings can be put to use appropriately and speedily in operational execution, in order to promote proactive management.
We have also established the Corporate Officers Meeting , the highest-ranking decision-making body on the executive side of the Group. Corporate Officers Meeting sessions are held once a month as a basic principle, with inside directors and inside audit & supervisory board members taking part in addition to six corporate officers; at the sessions, participants help to ensure agile operational execution by deliberating and making decisions on key items on the executive side, including those items for which authority has been delegated from the Board of Directors to the executive side.

Main Topics for the Board of Directors and Off-site Meetings

CEO	Reports on status of business execution by CEO (each meeting) Sharing of CEO missions
Medium- to long-term growth strategies	Market environments over the medium to long term and our growth plans Medium-term Management Plan and future growth strategies Financial strategies/capital policy/human resource strategies Business portfolio (establishment of new DSS BU) Mergers with Group companies Expansion and reinforcement of development and production facilities in Japan and overseas Business innovation projects
Risk/Compliance	Improvement of risk management processes Legal affairs and Compliance/Information Security Procurement risks Declarations of Partnership Building
Governance	Reports on Sustainability Initiatives for diversity Reports on investment in human capital and intellectual property activities Reports on internal audits Status of investment targets and cross-shareholdings Status of IR activities Status of the activities of the Nomination Committee and Compensation Committee Status of progress of successor development plan Closed session on evaluation of representative directors (members of the Board of Directors excluding the Representative Directors)

Off-site Meetings

In addition to the Board of Directors meetings, off-site meetings have been held on two occasions (September 2022 and March 2023), where medium- and long-term growth strategies, financial strategies, capital policy and human resource strategies have been discussed. In March, members also undertook an observation of the Miyagi Technology Innovation Center and other sites at Tokyo Electron Miyagi, where they developed a deeper understanding of the operations while also engaging in dialogue with employees on-site.

Observation of the Miyagi Technology Innovation Center

Establishment of the Director Compensation System

Basic Policy on Director Compensation

The TEL Group emphasizes the following points in its basic policies on compensation for corporate directors and Audit & Supervisory Board members.

Levels and plans for compensation to secure highly competent management personnel with global competitiveness
High linkage with business performance in the short term and medium-and-long term increase of corporate value aimed at sustainable growth
Securement of transparency and fairness in the decision process of compensation and appropriateness of compensation

Compensation Structure

Among corporate directors, compensation for inside directors consists of “fixed basic compensation,” “annual performance-linked compensation” and “medium-term performance-linked compensation.” Compensation for outside directors consisits of “fixed basic compensation” and “non-performance-linked compensation (stock-based compensation).”
Compensation for audit & supervisory board members consists solely of “fixed basic compensation,” in consideration of their role being primarily audit and supervision of management.
The following table sets out an overview of our policies and decision-making methods for each type of compensation.

Type of Compensation		Recipient			Overview of Compensation
Type of Compensation		Inside Directors	Outside Directors	Audit & Supervisory	Overview of Compensation
Fixed Basic Compensation		○	○	○	Monthly compensation is determined within the limit of total fixed basic compensation, which has been resolved at the Meeting of Shareholders For inside directors, amounts are determined according to the scale of job responsibilities by making reference to the job grade frameworks of an external expert organization (Willis Towers Watson)
Annual Performance-linked Compensation	Cash Bonuses	○	ー	ー	Amount to be paid is linked to business performance in each fiscal year, with a view to motivating recipients to contribute to improving the business performance in each fiscal year Consists of cash bonuses and stock compensation-based stock options; the composition is roughly 1:1 Specific amounts and the number of stock options granted shall be commensurate with the Company’s business performance and the results of individual performance evaluations in the relevant fiscal year 　(Indicators of the corporate business 　performance) 　 Net income attributable to owners of 　parent and consolidated ROE are 　adopted, while the result of the 　comparison with the competitors in 　terms of operating margin and 　operating margin growth ratio is 　reflected on the amount of payment 　(Individual performance evaluation 　items) 　Includ contribution to short- and 　medium-term management strategy 　targets including ESG Includ contribution to short- and medium-term management strategy targets including ESG Stock compensation-based stock options are subject to a three-year exercise restriction period from the granting of rights, designed to motivate recipients to share a shareholder perspective while contributing to increasing corporate value over the medium to long term
Annual Performance-linked Compensation	Stock Compensation-based Stock Options	○	ー	ー
Medium-term Performance-linked Compensation	Performance Share (Stock-based Compensation)	○	ー	ー	Paid to motivate recipients to contribute to medium- to long-term performance improvement If the payout rate is 100%, the payment amount is set at around 30% to 100% of the fixed basic compensation, commensurate with the scale of job responsibilityies The number of shares delivered is determined depending on the level of achievement of performance goals for the covered period (three fiscal years) Consolidated operating margin and consolidated ROE are adopted as performance indicators
Non-performance-linked Compensation	Restricted Stock Units (Stock-based Compensation)	ー	○	ー	The remuneration system is designed to be more consistent with the expected role of giving advice to the management from the perspective for increasing corporate value over the medium- to long-term Payment amounts is set at around 50% to 60% of the fixed basic compensation to ensure an adequate balance between cash compensation and stock-based compensation The Company shares shall be delivered after the expiration of the applicable period (three fiscal years)

Evaluating the Effectiveness of the Board of Directors

Overview of Evaluations of Effectiveness

To further enhance our governance and the effectiveness of the Board of Directors, we have conducted annual evaluations of the effectiveness of the Board since fiscal year 2016 and have disclosed summaries of the results.
Since fiscal year 2019, we have used external experts as a third-party organization to verify the status of initiatives relating to issues identified in the preceding fiscal year, identify future issues and work toward continuous improvement.

Evaluation of the Effectiveness of the Board of Directors for Fiscal Year 2023

Scope of Evaluation
- Board of Directors Overall (including details of the activities of the Nomination Committee and Compensation Committee)
Process

Evaluation Items
- The main evaluation items for evaluating effectiveness are as follows.

・Overall evaluation　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　
・Composition of the Board of Directors　　　　　　　　　　　　　　　　　　　
・Preparation in advance of Board of Directors
・Board of Directors operations
・Deliberations by the Board of Directors
・Roles and operational status of the Nomination Committee and Compensation Committee
・Roles of Audit & Supervisory Board members　
・Corporate Officer system　　

Initiatives for Issues Identified in Evaluations of Effectiveness in the previous fiscal year

Clarification of roles and decision-making authority between the executive side and the Board of Directors
- ・Introduce a Corporate Officer system, and establish Corporate Officers Meetings
- ・Revise the criteria for resolutions of the Board of Directors, and delegate a portion of the matters to be resolved to the Corporate Officers Meeting
- ・Corporate officers attend every meeting of the Board of Directors, and give briefings on the contents of any deliberations at the Corporate Officers Meeting and important matters relatedto the execution of business operations
- ・At off-site meetings, conduct a review following the introduction of the Corporate Officer system and confirm the issues to be considered going forward
Continuous deliberations to realize medium to long term growth and ongoing improvements to corporate value
- ・Have the CEO made reports continuously to the Board of Directors on the medium to long term growth strategies, including the progress of the Medium term Management Plan.
- ・Hold off-site meetings on two occasions, with discussions of key measures for accomplishing the Medium term Management Plan and their roadmaps, as well as topics of importance in the medium to long term, including strategies such as diversity and other human resources strategies, capital policy, and risk management.
- ・Have BUGMs ( Business Unit General Managers ) attend the off-site meetings, and exchange opinions with outside directors and outside Audit & Supervisory Board members on the status of operations executed with a view to achieving medium to long term growth strategies.
Have information be shared between members of the Board of Directors, and discretionary committees
- ・Have the Nomination Committee report to the Board of Directors regarding the status of its specific activities, including the progress of discussions regarding the succession plan and how to proceed going forward.
- ・Hold meetings outside of the Board of Directors to exchange information between the Chairman of the Board of Directors and outside directors and outside Audit &Supervisory Board members.

Overview of Fiscal Year 2023 Evaluation Results

The Company's Board of Directors believes that the Board of Directors is very effectively ensuring that the key roles and obligations of the Board of Directors are being fulfilled, namely, “establishing management strategy and vision," "making major operational decisions based on strategic direction," and “engaging in constructive, open minded debate” as prescribed in the TEL Corporate Governance Guidelines, and that the Board, including the Nomination Committee and the Compensation Committee are functioning effectively. The results of the analyses and evaluations performed by the external experts also confirmed that the Company’s Board of Directors is functioning effectively, supported by its strengths such as "non-hierarchical, open and natural discussion," "agile execution," and "drive in execution and unity of the management.” On the other hand, based on the analysis and evaluation results of external experts, the Board of Directors shared the intention to further enhance strategic discussions with a view to the future business environment from a longer term perspective as the importance of semiconductors increases.

Future Initiatives

Aiming to become the top company globally in the medium to long term we will continue to work on each of the following matters to further strengthen the supervisory function of the Board of Directors and the management and execution functions of the executive side and will further enhance its effectiveness by regularly reviewing its progress.

The company will systematically set agendas in line with medium to long term strategies and issues for growth, and will enhance discussions from a long term perspective
The company will enhance the effectiveness of the Corporate Officers Meeting, the highest decision making authority on the executive side
The company will conduct an analysis of the decision making of the Board of Directors, clarify the points of deliberation, and enhance opportunities for sharing information with outside directors and outside Audit & Supervisory Board members on occasions other than board meetings and off site meetings

Skills Matrix

We define “Product Competitiveness,” “Customer Responsiveness,” “Higher Productivity” and “Management Foundation,” which supports our overall business activities, as material issues.
We will achieve the medium-term goals in each material issue and realize expanding medium- to long-term profit and continuous corporate value enhancement through each Corporate Director and Audit & Supervisory Board Member, who have demonstrated their skills in Global Business, Governance, Sustainability, and others listed below as determined by the Nomination Committee and the Board of Directors.

Definition of Expected Skills

Corporate Management	Experience of corporate management (experience serving as a representative director or chairman/president)
Semiconductor Markets	Knowledge of semiconductor markets
Manufacturing/Development	Knowledge/experience in manufacturing and development at TEL and other manufacturers
Sales/Marketing	Knowledge/experience in sales and marketing at TEL and other manufacturers
Finance, Accounting/Engagement with Capital Markets	Knowledge in financial accounting and M&A, or knowledge/experience in engagement with capital markets
Legal Affairs/Risk Management	Knowledge of legal affairs, compliance, and risk management

Diversity of Board Members

Engagement with Capital Markets

Our management actively engages in IR (investor relations) and SR (shareholder relations) activities to contribute to our sustainable growth and increase corporate value over the medium to long term. In terms of IR activities, the CEO and each company’s executive appear at quarterly financial announcement and Medium-term Management Plan briefings to share our business strategies and growth story. We have also established the IR department under the direct control of the CEO to enable deeper discussions with our investors. As a part of our SR activities, company executives play a central role in constructive dialogue with our major investors and proxy advisory firms. In addition to explaining the Shareholders’ Meeting agenda in advance, we engage in repeated dialogue throughout the year on a wide range of topics including corporate governance, our policies about sustainability-related initiatives, the environment, human rights, and diversity and deepen mutual understanding. Opinions gathered from dialogues with investors are regularly reported to management and the Board of Directors.

Disclosure	IR-related
Engagement with Capital Markets	IR activities	Individual meetings for institutional investors: 624 times; overseas IR road shows: 3 times
Provision of Information	Financial announcement Medium-term Management Plan announcements	Broadcasting using simultaneous interpretation and subtitles Broadcasting of archives from announcements/conferences within one business day; disclosure of Q&A within two business days
Provision of Information	Shareholder’s meeting	Posting of convocation notices on the website and dispatch of convocation notices at an early stage
Disclosure	IR-related	Consolidated Financial Statements, Integrated Report, Fact Book (each once per year) Quarterly Report, Earnings Release, Financial Announcement Materials, Corporate Update (each 4 times/year)