Glory days might be over

SOE executives to see big pay cuts, reduction of benefits

Workers in State-owned enterprises (SOEs) are often admired by peers in the private sector and even in foreign-invested firms for their stable job status and high pay, which are seen as an "iron bowl." Their bosses are even more envied for holding a "golden bowl." But the glory days for the SOE chiefs may soon be gone.

This is because China may slash the salaries of the chiefs of its pillar State-owned companies and financial institutions by as much as 70 percent in a key step to overhaul SOE management that is often tagged with inefficiency and low investment return, according to recent media reports.

The annual salary of senior executives at central government-administered SOEs and State-owned banks would be capped at 600,000 yuan ($97,561) under a new rule, Caijing magazine reported Monday, citing unidentified sources with knowledge of a proposal drafted by the Ministry of Human Resources and Social Security with the participation of other related government agencies.

The draft plan has been completed and the ministries are soliciting comments, Caijing magazine reported.

The South China Morning Post reported earlier last week citing unidentified officials that bosses of the SOEs face pay cuts of up to 50 percent, in a plan endorsed by Chinese President Xi Jinping.

A press officer of the Ministry of Human Resources and Social Security told the Global Times on Tuesday that the plan was not drafted by the ministry but by China's Leading Group for Overall Reform, a top reform committee led by Xi.

Unreasonably high salaries for executives of major SOEs must be adjusted, Xinhua reported on August 18, citing Xi at a meeting of China's Leading Group for Overall Reform held that day.

The meeting reviewed a plan for salary reform as part of a broader reorganization of management at the SOEs, which is aimed at addressing public discontent over the ambiguous status of top SOE managers, particularly in companies backed by the central government.

Linking the reform with the government's campaign against extravagance, Xi also emphasized that apart from necessary expenditures certified by financial and fiscal regulations, SOEs executives will enjoy no other hidden perks in the name of executive benefits.

A pay-cut plan is expected to be rolled out in State-owned banks with Bank of Communications and Bank of China possibly among the first to have it implemented, according to Caijing.

Bank of Communications was not immediately available to comment, and a PR officer at Bank of China told the Global Times on Tuesday that they had not yet been instructed on this matter.

"We firmly support the decision [of the pay cut] and will implement the plan without reservation," said Zhang Yun, president of Agricultural Bank of China, at a press conference for its half-year financial resutls on Tuesday.

Too much

Pay cuts for senior executives at SOEs are intended to tackle the unfairness in income distribution, Xu Baoli, a director at the research center of State-owned Assets Supervision and Administration Commission, told the Global Times on Tuesday.

Many of these top executives are vice-ministerial ranking officials who enjoy privileges. Meanwhile, they are paid like top Western business executives and earn much more than their fellow officials and nongovernment workers.

The pay of SOE senior executives are often secrets, except for listed SOEs which offer a glimpse into how much their bosses earn.

The average annual salary of 12 senior executives at PetroChina was 800,000 yuan in 2013, while 12 senior executives at its rival Sinopec averaged 740,000 yuan, according to their annual reports.

The heads of the five large State-owned banks, which are all listed, earned more than 1 million yuan each last year.

Besides the SOE leaders' contradictory dual identity as businessmen and appointed officials, their personal efforts often do not justify their generous pay, Xu said.

In a fully competitive market, senior executives risk having their pay reduced or even being sacked for the poor performance of their companies, but SOE bosses do not face this risk.

Baoshan Iron and Steel Co, a Shanghai-listed subsidiary of Baosteel Group Corp, one of the 113 central SOEs, posted a 44 percent fall in net profit in 2013 from a year earlier. However, the total pay for its top three executives increased 10.7 percent year-on-year to 3.55 million yuan in 2013, the company's financial reports showed.

Similar cases can be found with State-owned coal producers.

Sky-high salaries are sometimes unjustified because many SOEs operate as monopolies or near-monopolies, Xu said.

SOEs like State Grid Corporation do not face financial risks, so there is no need to link the executive pay with the financial performance of the enterprises, he noted.

Salaries of senior executives vary greatly among listed SOEs in different sectors from 100,000 yuan to as much as 8.7 million yuan in 2013, based on information released by listed SOEs.

The average annual salary of urban and township workers of non-private sector was only 51,474 yuan in 2013, and the pay for private sector workers on average was even lower at 32,706 per annum, official data showed.

Other problems of the existing payment system for SOE chiefs include hidden executive benefits or perks, lack of transparency and absence of oversight by a third party or the public, Beijing Times reported on Monday, citing Liu Xiangli, a research fellow at Chinese Academy of Social Sciences.

Possible solution

Salaries, like the prices of many other resources, should be decided by the market not by the government, Mao Yushi, one of China's most outspoken economists, told the Global Times on Monday.

Based on a SOE reform blueprint released by the Third Plenary Session of the 18th Communist Party of China (CPC) Central Committee in November 2013, China has been trying to reduce government intervention in the operation of enterprises and revamp the low efficiency and red tape in SOE management.

Government-appointed officials should be kept away from business operations; instead they can join the board of directors and leave the day-to-day operations to be handled by senior managers recruited from outside, said Hao Yufeng, research director at China Enterprise Confederation.

Even though most of the SOEs have set up boards of directors, corporate governance is not implemented effectively as the government-appointed chairmen often act as decision-makers of business operations.

Salary reform is an important step toward the general direction of where China's SOEs are heading for, to revitalize the juggernaut State economy with injection of private capital and implement sound corporate governance, Hao said.