China is also going to regulate executives’ compensation - 15 Nov 2009

November 15, 2009

China is also going to regulate executives’ compensation

Chinese government is taking steps to limit the compensation of executives in China's State-owned enterprises (SOEs).  A
drafted regulation reportedly will cap the salary of senior executives
at no more than 10-12 times the average of regular SOE staff salaries.
The plan also limits the growth of executive pay to no faster than the
expansion rate of corporate profits.

The financial sector will be the first regulated, with a reported ceiling of $400,000 on executives' annual pretax cash salary.  While according to the National Statistics Bureau of China, in the year of 2008, the average income of SOE employees was $4,000.  So many people believe the ceiling still seems too high. 

Executive
pays came under the spotlight after Guotai Jun'an Securities Co, one of
China's leading state owned brokerages, revealed a package of $457
million for executive "compensation and welfare" in 2008.  The
financial companies' hefty payout deals drew widespread public ire,
when the average Chinese stock investors suffered steep losses. 

Compared to the executives’ compensation and regulation in US, China still has a long way to go and the problems in china are far from being solved by a simple salary cap.

First, the executives in China’s SOEs are not selected based on the market standards, such as education, experience, capability and track record.  Most of them are nominated by the central government or local governments, other than selected by the Board of Directors.  In reality, directors are still playing very limited roles in corporate governance in China’s companies, especially the state owned enterprises.

Second, as said in a research report from Mercer, the salaries of senior executives in state owned companies of China have little connection to the companies' performance.  Lack
of performance based incentive plans cannot encourage efforts on the
earnings growth, the risk management and other types of value added,
which is not good for the growth of economy and social development.

Third,
there are not effective disclosures on the executives’ compensation and
the remuneration of many high-level executives in China’s
SOEs are not transparent to the public. Mercer conducted studies on
executives compensation for China's CSI 300 Index companies traded in
Shanghai and Shenzhen stock exchanges since 2005, using publicly
disclosed information and found the disclosed compensation information
for executives is limited compared to those listed in countries such as
the US. 

Only
when the corporate governance of companies are greatly improved and
modernized, the executives’ compensation is connected with the
companies’ performance, and the disclosures are transparent, can the
incentive systems be scientific to some extent.

http://picker.typepad.com/legal_infrastructure_of_b/2009/11/china-is-also-going-to-regulate-executives-compensation.html

http://www.chinadaily.com.cn/bizchina/2009-03/02/content_7524520.htm