Beijing may extend executive salary caps

PUBLISHED : Friday, 20 February, 2009, 12:00am
UPDATED : Friday, 20 February, 2009, 12:00am

Beijing is considering widening a proposed ceiling on compensation for executives at financial firms to other state-owned enterprises (SOEs) amid calls for such an austerity measure to prevent potential social discontent in an economic downturn.

Yin Weimin, the Deputy Minister of Human Resources and Social Security, told a forum in Beijing yesterday that his ministry was working on revising the country's old regulation on remuneration at state-owned firms, Xinhua reported.

The move would aim at 'pegging corporate executive pay to a reasonable multiple level of grass-roots employee income', it said.

The existing rule only governs the allocation of bonus and basic salary as well as the payment method but there is no limit on the amount.

Last week, news emerged that authorities had proposed a pay ceiling for top managers at state-controlled financial institutions of 2.8 million (HK$3.18 million) yuan a year. Mr Yin did not specify any 'multiple level' numbers but the National Business Daily reported yesterday that the acceptable remuneration for an SOE manager should not exceed 12 times that of a grass-roots worker.

A widening income gap and falling profits have recently fuelled criticism that most mainland SOE executives are overpaid.

Total profit for state-owned enterprises slid by up to 16 per cent in the first 11 months of 2008, according to latest government figures.

'I reckon the restriction is an effective tool to ensure social stability but at the end of the day, it is a comprehensive and considerate executive performance evaluation system that really matters,' said Xiao Jianan, the chairman of Shanghai Director and Manager Resource, a government-owned headhunter.

Mr Xiao warned a rigid scheme could even result in pay rises in some cases as many SOE executives were making less than the proposed caps.

'It's not surprising that some of them would deliberately use the new rule as an excuse to persuade the board to increase their pay to that level,' he said.

With profits falling, some state-owned enterprises have already volunteered to slash executive pay.

In Shanghai, nine major state-owned companies, including car maker SAIC, have announced managerial-level pay cuts as deep as 40 per cent. In Hunan, the chairman of state-owned Sanyi Heavy Machine, a domestic heavy machinery manufacturing firm, agreed to take a symbolic one yuan for his 2009 annual pay.