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Bloated pay for execs stirs outrage
By Wu Jiayin |
February 20, 2009, Friday
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IT was rumored that top management of a state-controlled securities company might get an average pay of 1 million yuan (US$146,200) last year, when China's stock markets plummeted 65 percent.
But sources from the company, Guotai Jun'an Securities Co Ltd, a leading brokerage firm, said its chairman and president only received 830,000 yuan and 800,000 yuan respectively last year ??far below the cap of 2.8 million mulled by the State.
Is this enough to calm overwhelming public outrage at exorbitant executive pay?
Based on an internal document obtained by the National Business Daily, the company set aside 3.2 billion yuan last year to defray expenses relating to salary and welfare for its approximately 3,200 employees.
A simple calculation shows that each employee could then get an average of 1 million yuan for 2008, a nightmarish year for most small stock buyers.
Responding to the numbers, the company's spokesman told Xinhua news agency that it actually hired more people and paid out far less last year.
The number of employees on the payroll last year was nearly 5,500, while the actual paid-out salary and welfare expenses last year were 800 million yuan.
The executive pay does not include bonuses, but the spokesman emphasized that the total annual income of each executive would not exceed 1 million yuan.
However, the company performance last year hardly justified such incentives. Given the steep declines of China's stock markets, the brokerage failed spectacularly to meet most of its earnings targets.
But the firm's earnings remained impressive -the company had certainly made the most of its state-control status by cashing in on its "state-owned legal person shares," which enabled it to derive a net profit of 4.5 billion yuan, or over 80 percent the company's total net profit of 5.6 billion yuan last year.
Indeed, executives in Guotai Jun'an may well argue that 1 million yuan annual pay is by no means high when compared with that of their counterparts in other brokerages.
Yet it must be noted that China is still a developing country. The 1 million yuan annual pay is an astronomical figure when compared with the 15,718 yuan annual disposable income of an average urban resident and the 4,761 yuan annual income of an average farmer in China last year.
Even in the US, President Barack Obama has been urged to set a US$500,000 annual cap on executive pay for companies receiving government bailouts to prevent the misuse of the money of taxpayers.
The good news is that the Chinese government is also thinking of adopting similar measures. The Ministry of Finance has just drafted a salary management circular for executives with state-sector enterprises, as Xinhua reported on February 10.
According to the draft, the caps of pay packages for executives are four times their annual salary, which ranges between 50,000 yuan and 700,000 yuan.
Compensation caps for China's State-sector financial companies will be set at 2.8 million yuan (pre-tax revenue). Regrettably, the cap is obviously too high.
In the US, the US$500,000 annual cap on executive pay is somewhat comparable to Obama's annual pay, which is about US$400,000, according to a Xinhua report on February 5.
In China, however, as Wu Yi, the former vice premier once told the media, her annual pay as the vice premier was 120,000 yuan.
More important, unlike the US, most executives in Chinese state-owned companies are simultaneously public servants. They receive not only pay from their companies but also pay from the government as public servants.
But sources from the company, Guotai Jun'an Securities Co Ltd, a leading brokerage firm, said its chairman and president only received 830,000 yuan and 800,000 yuan respectively last year ??far below the cap of 2.8 million mulled by the State.
Is this enough to calm overwhelming public outrage at exorbitant executive pay?
Based on an internal document obtained by the National Business Daily, the company set aside 3.2 billion yuan last year to defray expenses relating to salary and welfare for its approximately 3,200 employees.
A simple calculation shows that each employee could then get an average of 1 million yuan for 2008, a nightmarish year for most small stock buyers.
Responding to the numbers, the company's spokesman told Xinhua news agency that it actually hired more people and paid out far less last year.
The number of employees on the payroll last year was nearly 5,500, while the actual paid-out salary and welfare expenses last year were 800 million yuan.
The executive pay does not include bonuses, but the spokesman emphasized that the total annual income of each executive would not exceed 1 million yuan.
However, the company performance last year hardly justified such incentives. Given the steep declines of China's stock markets, the brokerage failed spectacularly to meet most of its earnings targets.
But the firm's earnings remained impressive -the company had certainly made the most of its state-control status by cashing in on its "state-owned legal person shares," which enabled it to derive a net profit of 4.5 billion yuan, or over 80 percent the company's total net profit of 5.6 billion yuan last year.
Indeed, executives in Guotai Jun'an may well argue that 1 million yuan annual pay is by no means high when compared with that of their counterparts in other brokerages.
Yet it must be noted that China is still a developing country. The 1 million yuan annual pay is an astronomical figure when compared with the 15,718 yuan annual disposable income of an average urban resident and the 4,761 yuan annual income of an average farmer in China last year.
Even in the US, President Barack Obama has been urged to set a US$500,000 annual cap on executive pay for companies receiving government bailouts to prevent the misuse of the money of taxpayers.
The good news is that the Chinese government is also thinking of adopting similar measures. The Ministry of Finance has just drafted a salary management circular for executives with state-sector enterprises, as Xinhua reported on February 10.
According to the draft, the caps of pay packages for executives are four times their annual salary, which ranges between 50,000 yuan and 700,000 yuan.
Compensation caps for China's State-sector financial companies will be set at 2.8 million yuan (pre-tax revenue). Regrettably, the cap is obviously too high.
In the US, the US$500,000 annual cap on executive pay is somewhat comparable to Obama's annual pay, which is about US$400,000, according to a Xinhua report on February 5.
In China, however, as Wu Yi, the former vice premier once told the media, her annual pay as the vice premier was 120,000 yuan.
More important, unlike the US, most executives in Chinese state-owned companies are simultaneously public servants. They receive not only pay from their companies but also pay from the government as public servants.
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