State-owned Enterprises

Economic downturn forces state firms to cut executive wages

Senior executives bear brunt as mainland enterprises step up efforts to sustain growth

PUBLISHED : Saturday, 12 January, 2013, 12:00am
UPDATED : Saturday, 12 January, 2013, 4:02am

State-owned enterprises are set to cut salaries of senior executives to sustain growth amid rising operating costs and an unfavourable economic environment.

The State-owned Assets Supervision and Administration Commission said in a statement on Thursday state firms were required to step up efforts to reduce costs and improve efficiency.

"In 2013, the Sasac will strictly regulate salaries of SOE leaders and senior management," said Wang Yong, the chairman of Sasac. "Salaries will be more closely linked to company performance."

State-owned enterprises in some industries that were hit hard by the economic downturn last year have already seen salary cuts in the past year. China State Shipbuilding cut pay after the company reported first-half losses last year, the statement said. "Executives of many SOEs also took the lead in pay cuts in the second half of last year," it said.

Thomas Chan Man-hung, the head of Polytechnic University's China Business Centre, expects executives of other state enterprises to do the same.

"The voluntary salary cuts were not standardised [under the government's regulations], but it responded to the public's dissatisfaction," Chan said.

He expects the long-awaited income distribution reform to be unveiled this year. The reform would help regulate the salary levels of monopoly industries dominated by state enterprises. It was postponed several times last year.

The Ministry of Human Resources and Social Security said in a survey in October that the average salary of senior executives of listed companies rose to 668,000 yuan (HK$832,000) in 2010 from 291,000 yuan in 2005, with salaries for some positions surpassing 10 million yuan.

Although the salary levels of senior positions on the mainland remain lower than those at multinational companies, they are still resented by the public, and state firms have often been blamed for paying their senior executives too much.

Yi Xianrong, an economist with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, said administrative measures, including rules to regulate salary levels of senior executives, were unnecessary in helping state firms to cut costs or increase efficiency. "To increase efficiency, it would be better to reduce the number of SOEs," he said.

The economic slowdown also took a toll on state firms, which reported an 11.8 per cent year-on-year decline in first-quarter profits last year and a 16.1 per cent drop in the second quarter, Sasac said.

Profits in the first 11 months of last year were similar to the previous year at 1.1 trillion yuan, after a rebound in the third quarter.

"The results were uncomfortable," Wang said, adding that state firms faced severe challenges over the past year.

The operating environment would be more complicated this year, he warned, adding that rising production and operating costs would cause fiercer competition while the overcapacity problem in some industries would persist.