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Salary reform will cut executive pay, add transparency to state-owned enterprises
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SALARY reform at centrally administered state-owned enterprises is to be initiated next year, according to media reports.
This much-anticipated development finally touches upon the problem of seemingly unmerited high pay for SOE executives, which has been a lightening rod for public criticism.
Lack of transparency has long been the norm as executives at SOEs are partly paid off the books.
A bigger reason for public outrage is that their incomes are not always tied to performance. Even if a company sustains huge losses, executives are often freed of blame or punitive measures like their counterparts in the private sector. Instead, the SOE executive may get a pay raise or handsome bonus for their missteps.
Some executives also take up positions at subsidiaries of the parent company or at a joint venture, a privilege that entitles them to another paycheck, which is, of course, not made public.
Since SOEs are owned by taxpayers, their pay structures should be open to public scrutiny. Nonetheless, many plans authorizing such oversight in the past have been bogged down by resistance from vested interests.
So the speed, and ease, with which the new reform package was passed — it only took 11 days for deliberation, revision and approval — was both surprising and exhilarating. The content is remarkable. Seventy-two centrally administered SOEs including Sinopec, PetroChina, China Mobile, and financial and railways companies will be included in the first group of firms impacted by the reform.
Post-reform pay levels of senior executives are predicted to be no more than seven or eight times higher than the average income of employees. Executive pay cuts are expected, with a maximum of about 1 million yuan (US$163,340).
Ordinary employees at centrally administered SOEs are now paid about a twelfth of what their chief executives earn, according to Beijing News.
According to China Construction Bank’s 2013 annual report, its president Wang Hongzhang was paid 2.15 million yuan last year, about 14 times the average pay of its employees. His salary will likely be cut by about 930,000 yuan annually.
Another highlight of the reform is that it stresses the need to link executive pay and bonuses with their contributions.
Which is to say, financial security may no longer be the norm for the directors of loss-making SOEs.
This has sent a positive signal to overall reform in the sector.
Many behemoth SOEs have long been considered inefficient and bureaucratic, yet the political patronage they enjoy has granted them, among other privileges, easy access to financing.
This often comes at the expense of more robust, creative private firms, which face higher borrowing costs.
As such, pay structure reform is actually intended for a higher purpose than just instituting pay cuts at the top. It also seeks to overhaul the management model, performance assessment and corporate governance within SOEs.
Curbing powers
More, however, needs to be done to curb the powers of SOE directors, who sometimes double as officials.
Over the years, there have been too many cases where SOE “official-bosses,” vested with unrestricted powers, have become corrupt and either stolen or squandered state assets.
The new reform package has naturally stoked concerns among rank-and-file employees, who fear their salaries may also be cut. Quan Heng, deputy director of the Institute of Economy at Shanghai Academy of Social Sciences, a government think tank, doesn’t think they need to worry.
“The state has categorically said that income redistribution is about ‘benefiting the lowest and curbing the highest’. In reality, a 10 percent pay raise for a front-line employee is often less than a 1 percent pay raise for senior executives (in absolute terms). Front-line employees should not be made a victim of reductions of executive pay,” Quan has said.
The reform may appear fair with its two-pronged approach, but skepticism lingers. The sheer opaqueness of how SOEs are governed makes it hard to know if employees are worth the money paid for their services.
This has given rise to complaints with a populist ring that a job with an SOE is a well-paid sinecure.
Many SOE employees at the bottom of the hierarchy would rightfully object to these unsubstantiated claims, but cannot decisively dissuade the skeptics because of insufficient disclosure of information.
As Beijing Youth Daily opined on Monday, only when the salaries of SOE workers are no longer an object of envy, jealousy and even censure can they be readily accepted by the public.
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