Bank bosses facing pay cuts

New govt proposal to reduce high salaries of SOE banking institution heads

A recent reform proposal to cut the pay of bosses of State-owned enterprises (SOEs) has raised heated discussion in the media, especially as it specifically targets top executives in the banking sector, who have long been envied for their high salaries.

According to the half-year annual reports of the listed commercial banks, the average annual payment before deductions for the chairmen of the five biggest Chinese commercial banks was around 2 million yuan ($325,600).

However, their salaries will likely be reduced dramatically due to a proposal drafted by the Ministry of Human Resources and Social Security with the participation of other related government agencies, according to media reports on August 29.

The salaries of the chiefs of pillar SOEs and financial institutions will be cut by as much as 70 percent in a key step to overhaul SOE management that is often tagged with inefficiency, media reports said recently.

The annual salary of senior executives at central government-administered SOEs and State-owned banks would be capped at 600,000 yuan ($97,800) under a new rule, Caijing magazine reported Monday, citing unidentified sources with knowledge of the drafted proposal.

Although the top five banks were not immediately available to comment when reached by the Global Times, the chairmen of four banks - China Construction Bank (CCB), Bank of China (BOC), Industrial and Commercial Bank of China (ICBC), Bank of Communications (BoCom) - have within the last two weeks stated publicly their stand of "strictly supporting and carrying out" the central government's decision on payment cuts for chiefs of SOEs. The fifth bank is Agricultural Bank of China (ABC).

Industry watchers said payment cuts for chiefs of the State-owned financial institutions including banks will be more complicated than expected but are urgently needed given China's economic and political situation.

Is 2 million yuan too much?

The media has also reported recently citing analysts saying that the annual payment of leaders of top Chinese banks, which rank high among global banks in terms of size, were much lower compared with other large international banks such as HSBC, whose chief executive officer was reported to have been given an annual salary of over $20 million in 2011.

According to their half-year annual reports, the annual payment before all deductions for CCB Chairman Wang Hongzhang was 2.14 million yuan in 2013, while ICBC Chairman Jiang Jianqing earned a total of 1.99 million yuan before deductions last year.

The Chairman of BOC Tian Guoli, who assumed office in May 2013, received 1.35 million yuan before deductions for eight months in 2013.

The former Chairman of ABC Jiang Chaoliang earned a total of 1.13 million yuan before all deductions in 2013, and the Chairman of BoCom Niu Ximing was paid 1.79 million yuan before all deductions in 2013, the two listed banks' annual reports show.

"It is not reasonable to make a direct comparison between the salaries of top executives of Chinese State-owned banks and foreign banks that operate under different national conditions," Ye Qing, deputy director of the Statistics Bureau of Hubei Province, who is also a professor at the Zhongnan University of Economics and Law, told the Global Times Thursday.

Contrary to the heads of banks in Western developed markets, whose firms operate in a fully competitive market, "leaders of the Chinese State-owned banks have much less work pressure," Ye noted.

The pay for the heads of foreign banks always fluctuates in accordance with their business performance, added Ye.

Another difference is that most leaders of Chinese State-owned banks were appointed by the government or had an official background.

For instance, the chairman of CCB Wang Hongzhang used to be bureau chief at the Sichuan branch of the State Administration of Foreign Exchange in 2000, and later took office in 2003 as secretary of discipline inspection commission at the People's Bank of China, the country's central bank.

Ye believes the upper limit of 600,000 yuan for annual salaries of senior executives at central government-administered SOEs and State-owned banks is "reasonable" and in line with China's per-capita income.

The average per-capita income in China's urban areas was 29,547 yuan in 2013, according to the National Bureau of Statistics.

'Double-track' salary system

Zhao Xijun, deputy director of the Financial and Securities Institute at Renmin University, thought the upper limits for salaries of bosses at State-owned banks "could be adjusted-," if they are not appointed by the government.

Most of the chiefs of Chinese SOEs are appointed by the government mainly because the SOEs have another role in social responsibility such as ensuring employability and offering public services, in addition to making profits, Zhao told the Global Times Thursday.

Zhao suggested a "double-track salary system" for the Chinese banking sector.

For chiefs who are appointed by the government and shoulder the responsibility of offering public services, their salaries should be set according to the benchmark set by the government. Meanwhile, for the chiefs who manage the banking businesses that are fully competitive, their salaries should be market-oriented.

Another opinion, which was widely carried in media reports, suggested that government-appointed officials should be kept away from business operations.

To make the banks operate more transparently and let them run in a market-oriented way, they can join the board of directors and leave the day-to-day operations to be handled by senior managers recruited from outside.

Ye also warned about the potential risk of corruption if the government-appointed officials are authorized too much power in business operations.

Helpful for talent flow

In the event of likely pay cuts for bosses of the State-owned banks, some senior managers of Chinese banks are concerned that this would result in an outflow of talent from the top State-owned banks to private and foreign banks, Xinhua News Agency reported on September 3.

But Ye said "it would be good" to see top executives in State-owned banks transfer to other banks, as talent flow will be helpful to improving management in the whole banking sector.

Since this round of reform on SOE salaries will only cover top leaders, salaries of regular staff in banks will not be affected, and a massive talent outflow will be unlikely, according to the Xinhua report.

The salary gap between top executives and staff members in banks will be reduced as the banks will try to improve salaries of regular staff, Xinhua reported, citing CCB Chairman Wang Hongzhang as saying.