Sasac moves to limit stock options windfall for state enterprise chiefs

PUBLISHED : Saturday, 26 April, 2008, 12:00am
UPDATED : Saturday, 26 April, 2008, 12:00am

The central government is seeking to cap stock option incentives for executives of state-owned enterprises (SOEs), which effectively will block their access to overnight riches when they cash in their share holdings in the open market.

While upsetting many SOE managers who are entitled to such an incentive, the new rule to be implemented by the State-owned Assets Supervision and Administration Commission (Sasac) will pacify a public that is fed up with news that managers of listed companies make millions of yuan a year, even during a stock market downturn.

Mainland chatrooms were inundated with indignant comments earlier this month when Ping An Insurance, the country's second-biggest insurer, disclosed that its chairman Ma Mingzhe made 46.16 million yuan (HK$51.55 million) last year, including a 41.32 million yuan annual bonus and share options.

It mattered little to the public that the Shenzhen-based insurance underwriter was privately owned.

Ping An has tried to justify its executive pay scale by saying that as a company with international aspirations, it needs to match global standards to secure talent.

The change of rule 'is not the best solution [to the problem of quick riches from stock options], but this way we can avoid an outcome that most of society doesn't want to see,' Xiong Zhijun, an official from Sasac, which oversees state assets, told Caijing magazine.

As the magazine reported, SOE officers will be allowed to sell optioned stock only up to the value of 50 per cent of their salaries in the year the options are issued. The rest of their holdings will be forfeited.

A regulation issued in 2006 only allowed SOE managers to be granted stock options for up to the value of 30 per cent of their salaries but failed to address how much they could gain by selling those shares to the public.

Renmin University economics professor Zhao Xijun said the move showed Sasac was still sceptical of the role that listed SOE managers play.

'Sasac knows better than anybody else that many listed SOEs make money simply by taking advantage of their government-appointed market monopoly positions, and many managers did not deserve the credit they have received,' he said.

Tian Wenzhi, a senior consultant with AON Human Capital Consulting (Asia), called for flexibility in implementing the new rule.

'You have to separate the companies that compete head to head in the market and the ones that profit through monopoly positions,' Mr Tian said. 'It's unfair to treat everybody the same way because different levels of effort and skills are needed in different sectors.'

If put in place, the cap effectively will limit the incomes of SOE managers and widen the remuneration gap between them and executives of private-owned listed firms.