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Brokers' pay draws regulatory concern

CHINA'S securities regulator may launch an investigation into brokers' compensation after media reports indicated hefty bonuses were doled out to executives and other employees despite a stock market slump, sources said yesterday.

The market watchdog could require all domestic stock firms to file detailed reports on executive compensation for last year in a move to check for possible irregularities, according to people familiar with the matter.

The China Securities Regulatory Commission also plans to demand that brokers improve their compensation and incentive programs in a way that directly links salaries and bonuses to corporate profitability and market conditions, sources said.

But the regulator isn't likely to place a specific limit on pay for senior executives at domestic brokers as the US government did when it capped salaries for corporate executives whose firms take federal bailout funds, according to the sources.

Shanghai-based Guotai Junan Securities Co, one of the largest securities firms in China, recorded an annual payroll of 1 million yuan (US$147,000) per person last year, according to a report in the National Business Daily.

The brokerage's employee salaries, bonuses and other welfare costs reached 3.2 billion yuan last year, far exceeding the estimated budget of 2 billion yuan announced at the beginning of 2008, according to the newspaper.

The securities firm's compensation to employees was 1.24 billion yuan in 2007 and 529 million yuan in 2006, the paper said.

Guotai Junan said in a statement on Thursday that the total remuneration package last year included bonuses rolled over from 2007, when the stock market surged, as well as money reserved for long-term rewards.

"The regulator has noticed the media coverage of Guotai Junan's high payroll costs and is considering an industry-wide investigation into brokers' compensation," said a source close to the CSRC. "It also plans to issue guidelines to order brokers to curb pay rises if business weakens."

Sources at Guotai Junan told Shanghai Daily that the average total annual compensation for a junior manager for 2008 was about 200,000 yuan while a senior manager made around 500,000 yuan. They said bonuses distributed last year were largely for the market boom in 2007.

It's not known how much senior executives were paid at Guotai Junan last year as the broker is not publicly listed. The sources said, however, that compensation for top officials could reach several million yuan plus stock options.

"Guotai Junan is not a single case," said Wu Ke, a Zhongtian Investment Consulting Co analyst.

"Chinese brokers should be more transparent about senior executives' salaries and bonuses while regulators should boost oversight," Wu said.


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