Legislation drafted to put ceiling on executive salaries

The salaries of executives in China's State-owned enterprises (SOEs) could soon be limited.

A drafted regulation reportedly caps the salary of senior executives at no more than 10-12 times the average of regular SOE staff salaries. The plan also limits the growth of executive pay to no faster than the expansion rate of corporate profits.

According to the National Bureau of Statistics, in the first three quarters of 2008, the average income of SOE employees was 20,576 yuan.

"The salaries of executives in SOEs should be controlled because they are appointed by the government, not chosen by their market value and SOEs enjoy more favorable policies and resources than their private counterparts," said Liu Junsheng, a researcher with the Ministry of Human Resources and Social Security.

The financial sector will be the first regulated, with a reported ceiling of 2.8 million yuan on executives' annual pretax salary.

Executive pays came under the spotlight after Guotai Jun'an Securities Co, one of China's leading State-sector brokerages, revealed a package of 3.2 billion yuan for executive "compensation and welfare" in 2008.

If the 3-billion-yuan total compensation was equally shared by the company's 3,200 employees, each would receive about 1 million yuan, or 88 times an average urban worker's annual income.

The financial services industry suffered major losses so the financial companies' hefty payout deals drew widespread public ire.

An online survey conducted by ifeng.com showed that over 96 percent of netizens said the performance of the executives in SOEs did not match their high salaries.

The salaries of many high-level executives in SOEs are also not transparent to the public. Human resources consulting firm Mercer conducted studies on executives compensation for China's CSI 300 Index companies traded in Shanghai and Shenzhen stock exchanges since 2005, using publicly disclosed information and found the disclosed compensation information for executives is limited compared to those listed in countries such as the US.

"People have a right to know about executive salaries, including the specific amount, their performance evaluation method and performance results. But this kind of information is not available for companies on the Chinese mainland," said Zheng Wei, managing director for Asia executive remuneration business with Mercer.

According to the Mercer report, in 2007, most bank presidents' compensation was about 10-20 times that of an average staff salary. The report also said the salaries of senior executives in State banks have little connection to the banks' performance.

The highest pay package in financial industry in 2007 was as much as 66 million yuan for Ma Mingzhe, chairman of Ping An Insurance (Group) Co, which garnered criticism on Internet forums.

A draft of a general regulation to cap salaries of high-level executives in SOEs will be submitted to the State Council for approval soon, said Liu.

(China Daily 03/02/2009 page4)