Xi Jinping targets China's corporate titans with executive pay curbs

Xi Jinping is taking aim at senior managers at big state-owned enterprises with a new plan to limit executive pay, even as the Beijing continues its push to limit government interference in the economy.

China's president this week revealed plans to reform the way SOE management is paid and cut wasteful expenditure at state groups.

Senior managers at Chinese state-owned enterprises are not highly paid compared with their western peers. Communist party leaders also pledged last year to let market forces play a "decisive" role in resource allocation as they attempt to correct distortions in the economy that threaten to derail growth.

Chinese analysts say the plan owes as much to Mr Xi's sweeping anti-corruption campaign as to efforts to raise efficiency in the bloated state sector, including through privatisation.

"Fundamentally, state-owned enterprises belong to every Chinese citizen, so they have to embody the will of the people to some extent," says Ju Jinwen, an economist at the Chinese Academy of Social Science, a think-tank that advises the government.

"You can't completely rely on the standards of a private enterprise to evaluate the performance and compensation of SOE managers."

The leaders of about 50 of the biggest central government-owned companies are appointed by the Communist party's Central Organisation Department and carry bureaucratic rank equivalent to cabinet ministers or vice-ministers. That fuels the public perception that they enjoy dual privileges as both business and political leaders.

However, the salaries that Chinese media hold up as examples of SOE excess are trifling by the standards of western corporate titans.

Xi Guohua, chairman of China Mobile, the world's largest telecoms company by subscribers, earned HK$2.3m ($294,000) in 2013, the company's annual report shows. That compares with £706,000 ($1.2m) for Gerard Kleisterlee, chairman of Vodafone.

In finance the contrast is even more striking. Jiang Jianqing, chairman of Industrial and Commercial Bank of China, the world's largest lender by assets, earned Rmb2m ($325,000) in 2013, a fraction of the $20m earned the same year by Jamie Dimon, his equivalent at JPMorgan Chase.

Mr Ju and others counter that Chinese per-capita income is still a fraction of that in the west and that Chinese executive pay should reflect that gap. They add that the size and profitability of many large SOEs derives from their quasi-monopoly status in protected industries such as energy and telecommunications, rather than from management acumen.

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"They don't get that much cash, but that's just a fraction (of their true compensation). There's also cars, phones and other so-called 'business consumption.' So the figures in the annual report can't fully reflect what they get," says Li Jin, chief researcher at the China Enterprise Research Academy.

In addition, at many SOEs senior executives are not the most highly compensated employees. Five employees of ICBC earned more than Rmb7.5m in 2013, according to the bank's annual report, which did not name them. The highest-paid earned more than Rmb13m.

Bank of Communications, the country's fifth-largest lender, said on Thursday it was preparing a plan to offer stock incentives to managers, in a sign that the government may be rethinking a ban on such schemes at financial groups instituted in 2008. The move could help align bankers' interests with those of the company - but it may also result in higher overall pay.

The government previously revealed executive-pay reform plans in 2004 and again in 2008, but they achieved little. This time round, critics of SOE pay are more optimistic for the chances for substantive reform.

Previous reforms were led by the State-owned Assets Administration Supervision and Administration Commission, which is politically aligned with the 115 large non-financial SOEs it supervises.

But the latest plan comes from a new high-level body, the Leadership Small Group for Comprehensively Deepening Reform. This ad hoc group of senior leaders was created specifically to implement the landmark reform plan approved at the party's Third Plenum meeting last November. Chaired by Mr Xi himself, it has the political muscle to succeed where previous efforts have failed.

The government did not provide detail on its plan but Mr but Li says SOE executives should earn no more than six to 12 times the salary of a typical employee. That compares with an average multiple of 296 at US companies, according to the Economic Policy Institute, a left-leaning Washington think-tank.

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