Cutting salaries of SOEs' big bosses a mere populist move
It's hard not to get the impression that Beijing is seriously taking on state-owned enterprises.
On Monday, President Xi Jinping pledged to "adjust the excessive and unreasonable pay" at SOEs in the first publicised decision of his pet entity, the dire-sounding Central Committee on Comprehensively Deepening Reforms.
State media has been suitably primed. "SOE management paid sky-high sums amid astronomical losses," read one. "Energy enterprises' chairmen paid 30 times a miner," said another, along with a list of which boss is being paid how much.
But beyond the hype, the whole exercise is nothing more than sheer populism. This is best illustrated in the hue and cry over the salary of the country's top bankers that has attracted so much criticism that they are reportedly going to take a pay cut as deep as 50 per cent.
Let's consider the 2 million yuan pay for Jiang Jianqing, chairman of Industrial and Commerce Bank of China. Not much by international standards but quite generous when you consider the fact that he also enjoys the perks of vice-ministerial-level officials and that the bank is sheltered from competition by the state.
The perks basically cover everything that Jiang could possibly need in daily life - a home dinner with business contacts, hair cut, the best medical care … you name it. Understandably, the media has been flogging it hard. Yet the irony is, Jiang's pay was not secretly arranged. It was "designed and decided" by the government.
Under the current regulatory regime, the Ministry of Finance and the Party approve the pay of every chairman, president, executive director, vice-president and supervisor at state-owned banks. Every year, the board states a ballpark figure - which, unsurprisingly, remains the same regardless of the bottom line - in the annual report pending state approval.
The ministry and the Party always come back with a very different sum with a detailed breakdown of salary, bonus and deferred bonus. It is then put to vote by shareholders.
In short, the state not only vets the pay, it actually designs it. In fact, Jiang's pay was approved only in late June. So why has the state suddenly woken up to his supposedly excessive pay? The only answer is politics.
Could there be a more populist measure than slashing the salary of SOE bosses? Applause is much needed when the more fundamental SOE reform is barely inching forward. The campaign-style publicity that one has witnessed in the state media, therefore, makes eminent sense. The more the public discontent, the deeper the cut.
With the top leader sticking his head out on the issue, there's no doubt we will soon see a "detailed" structure of state executive pay. Mainland officials are masters at designing such structures but how effective would that be in incentivising executives and making SOEs genuine corporations is doubtful.
Back to our bank example. China already has a detailed formula to regulate bankers' salary. It was introduced after the 2008 financial crisis to prevent mainland bankers from following their international peers in making outrageous bets for a hefty bonus.
Under this scheme, not only is half of a banker's salary performance-linked, there is also a deferred payment element so that bankers only get half of the bonus with a lag of three years - on par with the incentive system of many international banks. But when it comes to actual pay, we are back to Chinese socialist characteristics, with all bank bosses getting the same pay irrespective of performance.
Jiang's pay last year was the same as his 2012 record while the bank's profit increased 10.2 per cent. In 2012, he got 1.41 million yuan excluding the deferred bonus. That is only 10,000-30,000 yuan above the pay of the other three chairmen. (The 2013 numbers for other banks are yet to be announced).
In the eyes of the Party, there shouldn't be any meaningful difference between their pay when all four got the jobs from the Party, carry more or less the same rank, and are managing businesses that enjoy the same policy protection.
The poor state of state-run enterprises is rooted in the Party's tight grip on them and so far nothing has been done to ease that control. Without addressing this fundamental problem, all the noise about SOE pay is mere grandstanding.