Revision of Compensation Program for Directors, Auditors and Abolition of Retirement Bonus Scheme

Komatsu Ltd. announced today the Board Meeting held today made a resolution to revise the compensation program applicable to all directors of the Board and auditors, including the retirement payment scheme which the Company plans to abolish.

1. Purpose
The Company believes the compensation to directors and auditors should be determined by taking its performance and shareholder value more into consideration, which means managing the Company in the interests of shareholders.

2. Details
Based on the surveys of executive compensation by the third parties, Komatsu's Compensation Committee, consisting of mainly outside members, has provided the Board with the following matters after thorough discussions, and has ensured reasonable and appropriate levels of compensation. However, Komatsu is convinced that its new compensation program should be more transparent and objective than the previous one.
[NOTE] Komatsu's Compensation Committee is different from the one legislated by Japanese Commercial Law.

1) Gradual Abolition of the Retirement Payment Scheme
The retirement payment will gradually be reduced for total abolition in three years.
In June, this year, just after the annual shareholders' meeting ends, the Company will start reducing a part of accruals of the retirement payment. After the end of the annual shareholders' meeting in 2007, no accruals will be reserved. As a result, any retirement payment for the tenure will no longer be paid to the directors or auditors after the annual shareholders' meeting in 2007.
The amount equivalent to the reduction of the accruals will be added on the base salary and short-term incentive for the directors.
The same rule will apply to Executive Officers' retirement payment.
[NOTE] Pursuant to the Japanese Commercial Code, the above matter is conditional on the approval of the 135th annual shareholders' meeting, to be held on June 25, 2004, concerning the revision of the amount of compensation.

2) Revision of the Incentive Program for the Directors
Under the new scheme, the amount of directors' short-term incentive will be calculated by primarily considering the achievement of ROA along with ROE and operating profit. The Company will review the new scheme to further reflect the relationship between the directors' annual incentives and the Company's performance.
The stock option program will also be revised. The number of shares granted to directors will be increased as their incentive to enhance shareholder value.

3) Abolition of Auditors' Short-term Incentive
To further ensure the auditor's independent position from management, the incentive program for auditors will be abolished starting in the next fiscal year (2005). Auditors should be paid only their base salary, including the additional amount equivalent to that of the reduction of the accruals of the retirement payment and incentive starting July, 2004.