TOKYO (Reuters) - How big should executive pay packets be? How widespread is lax corporate governance in Japan? And what’s the future of the alliance between Nissan and France’s Renault?

FILE PHOTO: A combination picture shows logos of Japan's Nissan and France's Renault on cars in Strasbourg, eastern France, Oct. 25, 2012. REUTERS/Vincent Kessler

These are the broader issues brought into focus by the indictment of ousted Nissan Motor Co Ltd chairman Carlos Ghosn.

Ghosn was arrested on Nov. 19 charged with understating his compensation by about half of the 10 billion yen ($88 million) he was awarded over five years from 2010. He was re-arrested on Dec. 10 on similar suspicions for another three years.

Nissan was indicted for filing false financial statements.

Ghosn, who has been detained since his arrest, has denied the allegations, public broadcaster NHK has reported. Nissan said it will correct past financial reports.

TOO MUCH, NOT ENOUGH?

Sky-high executive pay is a touchy topic in Japan, where conspicuous consumption is frowned upon and wealth gaps are contentious. Ghosn’s undisclosed compensation charge is also politically sensitive in France, where President Emmanuel Macron has been battling anti-government protests.

Japanese CEOs on average are paid just 11 percent of their U.S. counterparts, showed a report by Nicholas Smith, Japan strategist at CLSA. “In many cases, investors probably ought to worry more that executives are being paid too little and so are being underincentivised.”

Ghosn’s reported pay in the latest financial year of $16.9 million dollars from Nissan, Renault SA and alliance member Mitsubishi Motors Corp made him among the most well-paid executives at global auto companies.

Since 2010, Japanese firms have been required to disclose details of executive remuneration including stock options and bonuses when the total exceeds 100 million yen.

GOVERNANCE LESSONS

Three years ago, Prime Minister Shinzo Abe introduced a corporate governance code setting rules on disclosure, shareholders’ rights and independent directors as part of his “Abenomics” economic policies. But the code is not legally binding.

At Nissan, the Ghosn affair has exposed big gaps in governance, experts agreed. “It’s a textbook case of poor governance,” said Nicholas Benes, director of the Board Director Training Institute of Japan.

Nissan’s board has created a special committee to improve governance, which will likely recommend an increase in external board members and creation of a committee to oversee compensation. The lack of such a committee gave Ghosn huge scope to decide his own remuneration.

The role of outside directors has also come into focus since they are supposed to provide oversight. More Japanese firms now have more external directors than in the past, but experts question how much clout they have.

Nissan has three - a female race car driver, a former trade and industry bureaucrat and a retired Renault executive - but is likely to increase that number.

The governance problem is probably not limited to Nissan. Japanese firms are not required to have a compensation committee and only 26 percent of listed firms do, although the practice is more common among bigger companies, CLSA’s Smith said.

Abe is keen to keep the Ghosn affair from giving his governance reforms a black eye. “As economic globalization makes rapid progress, Japan will continue to step up efforts to make corporate governance effective,” he told reporters his week.

ALLIANCE WOES

The crisis also reflects underlying strains in the two-decades-old partnership between Renault and Nissan and threatens to shake the alliance further.

Some media and analysts have posited that other senior Nissan figures used investigations into Ghosn’s alleged financial misdeeds to oust the automaker’s one-time savior as a way to prevent any attempt by Renault to strengthen control of the more profitable Nissan.

Ghosn remains chairman and CEO of Renault but the French government is seeking candidates to replace him.

Nissan CEO Hiroto Saikawa has denied the “coup d’etat” theory but Nissan has clearly been dissatisfied with the unequal alliance. Renault owns 43.4 percent of Nissan, which in turn holds a 15 percent stake in its parent company but without voting rights.