By Makiko Yamazaki and Ritsuko Shimizu

TOKYO Airline operator ANA Holdings plans to offer around $60 million worth of shares to thousands of employees, the latest Japanese company to use employee share incentives as a tool to retain talent and comply with a request by the regulator to pay more attention to share price performance.

ANA will offer 100 shares worth about $20 each to about 70% of nearly 45,000 employees in November, following in the footsteps of other major Japanese firms such as Omron and Sony Group.

The employee share incentive plans coincide with one of the most severe labour shortages Japan has seen in years, and as the Tokyo Stock Exchange urges listed firms to become "more conscious" of their share prices due to concerns that far too many companies are trading below their book value.

In the last five years, the number of Japanese companies offering equity-based compensation to employees doubled to 966, data from Nomura Securities shows, representing a quarter of the some 3,900 listed firms.

"We are seeing a surge in inquires now," Motomi Hashimoto, principal researcher at Nomura's stock incentive solution department, told Reuters. Stock incentives are seen positively by the market "as higher stock prices directly boost such incentives," she said.

By having more employees as shareholders, executives hope staff will be more committed to their company's effectiveness and earnings, and therefore its stock performance.

Raising corporate value is key for investors in Japan, where so many stocks are chronically undervalued that the Tokyo Stock Exchange made a rare call in March for firms to disclose long-term plans to improve capital efficiency.

At Omron, stock incentives are meant to "align management, employees and shareholders", said Hitoshi Tanimura, senior general manager at the human resources department.

Sony, which introduced stock incentives years ago for some management levels, recently changed its framework to make the incentives more attractive, a spokesperson said.

At ANA, employees must hold on to their shares for three years before they can sell or transfer them, said Shintaro Takano, a general administration executive.

"When the pandemic hit our earnings, many employees in their thirties and forties left," he said. "The stock incentives are aimed at beefing up engagement with employees and promoting their interest in raising corporate value."

Stock-based compensation, mainly for managers, became popular after former Prime Minister Shinzo Abe introduced corporate governance reforms nearly 10 years ago that made such incentives more tax deductible.

Today, employee stock incentives are also a way for companies to replace cross-shareholdings, a common practice where companies take stakes in partners to cement relationships and avoid activist investors.

Cross-shareholdings have drawn criticism from international investors and companies are under pressure from the regulator to unwind them as soon as possible.

Despite its increasing popularity, just a quarter of top 100 Japanese companies have employee stock incentives compared to more than 80% in the United States or Germany, data by consulting firm Human Resources Governance Leaders shows.

Experts say labour laws that require employers pay wages in actual currency have hindered the spread of employee share incentives, because stocks can only be added onto wages, instead of replacing part of them.

Shinji Ishikawa, senior chief manager at Mitsubishi UFJ Trust and Banking's human resources solution services division, said more legal flexibility would accelerate the adoption of stock incentives.

(Reporting by Makiko Yamazaki and Ritsuko Shimizu; editing by Miral Fahmy)