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BusinessBanking & Finance

Worlds apart on pay scale

JP Morgan's Jamie Dimon and ICBC's Jiang Jianqing each sit atop a banking giant but their financial rewards are starkly different

PUBLISHED : Thursday, 23 August, 2012, 12:00am
UPDATED : Thursday, 23 August, 2012, 2:13am

JPMorgan Chase pays Jamie Dimon US$1.21 million for every US$1 billion of profit at the biggest American bank. Industrial & Commercial Bank of China, the world's most profitable, gives its top executive US$9,400.

That pay-to-performance gap is set to widen this year. The state-controlled Chinese lender, led by chairman Jiang Jianqing, may post second-quarter net income of US$9.63 billion next Thursday, while Bank of China will probably report US$5.44 billion today, according to analysts' estimates. New York-based JPMorgan last month reported a 9 per cent decline to US$4.96 billion following its trading loss in London.

Pay has not kept pace with earnings in China, where government-appointed bankers have escaped the ire directed at overseas rivals for losing money on complex derivatives, money laundering or rigging rates. Still, the banks' shares remain weighed down by concern that slowing economic growth will trigger defaults by developers and local governments.

"Chinese banks are risk averse due to culture, a different executive compensation structure" and the profitability of their lending operations, said Himanshu Shah, chief investment officer of Shah Capital Management in North Carolina. However, the banks are changing and will "resemble their Western counterparts to a great extent over the next five years".

Jiang's 1.96 million yuan (HK$2.40 million) in compensation for last year included 589,500 yuan that will be distributed over three years starting this year, depending on his performance, according to an exchange filing by ICBC in May. His total pay has increased by about half since the bank's initial public offering in 2006, when ICBC did not have a deferred-compensation programme. The lender's net income soared more than fourfold to a record 208.3 billion yuan in that period.

Jiang, 59, became president of ICBC in 2000 and chairman in 2005. The son of a Shanghai doctor, he joined the lender in 1984 after stints working at farms and in a coal mine during the Cultural Revolution. Like other key party and government posts, the top jobs at ICBC and other large state-owned banks and companies are assigned by the Communist Party's central organisation unit. The executives, who are also party members, are under the oversight of its disciplinary committee.

Dimon, who is both chairman and chief executive of JPMorgan, was awarded total compensation last year of US$23 million, including a salary, bonus and stock options. He was the highest-paid banker among 50 chief executives at the largest US-based financial firms, according to the Finance 50 ranking by Bloomberg Markets. Dimon, who is struggling to contain damage from a botched derivatives trade that has cost the bank at least US$5.8 billion, has said any impact on his pay would be decided by the board. JPMorgan shares had fallen 9.2 per cent by the end of last week since he disclosed the "egregious" failure on May 10.

In Britain, HSBC said it would pay chief executive Stuart Gulliver, 53, as much as £13.3 million (HK$162.47 million), including long-term bonuses for last year, making him Britain's best-paid banking chief. Local rival Barclays awarded Bob Diamond, 61, as much as £12.5 million.

HSBC last month posted an 8.3 per cent drop in net income for the first half to US$8.44 billion while keeping its place as Europe's most profitable lender. Accused of laundering money for Mexican drug lords and wrongly selling payment-protection insurance and derivatives to British clients, the bank set aside US$2 billion to cover fines and lawsuits. Diamond and Barclays chairman Marcus Agius, 66, were forced to resign last month following criticism from lawmakers and the Bank of England for that lender's role in the Libor scandal. The bank was fined a record £290 million in June by US and British regulators for trying to rig the London interbank lending rate.

China's top bankers have escaped the tarnish of such scandals in recent years. The state-run lenders were transformed from almost insolvent institutions with spiralling defaults a decade ago with the help of more than US$650 billion in bailouts. The four largest banks, all based in Beijing, went on to raise a combined US$64.5 billion through first-time share sales starting in 2005 and rank among the world's seven largest by market value.

Jiang's annual compensation has stagnated in the last two years, the bank's annual reports show. China's largest lender froze salaries for management this year, the 21st Century Business Herald newspaper reported in May, citing unidentified sources. ICBC press official Wang Zhenning declined to comment.

China Construction Bank, the world's second-largest lender by profit, may post a 10 per cent gain in net income on Sunday to 50 billion yuan, the analysts estimate. Pay for its chairman has varied, dipping to 1.57 million yuan in 2008 before climbing to as much as 1.83 million yuan in 2010.

The executives are not motivated by their salaries because "they are more concerned about their career path as a government official", said Oliver Rui, a professor of finance and accounting at the China Europe International Business School in Shanghai. "They are half professional, half politician."

Press officials at the four largest lenders declined to comment on compensation levels.

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