Swollen State business bonuses stir call for reform

• Source: The Global Times
• [21:36 May 20 2009]
• Comments

By Chen Xiaomin

 Outrage over sky-high executive compensations has spread throughout the world, including China where anger and skepticism has focused on the high salaries and opaque payment systems for bigwigs at State-owned enterprises (SOEs).

But as tempers cooled, people began thinking about a more equitable and efficient SOE executive compensation system.

Annual reports of publicly listed SOEs recorded a steep downturn in 2008 — the total net profit was down 14.67 percent year-on-year, the first negative increase since 2001. In stark contrast, total executive bonuses climbed to 5.03 billion yuan ($737.16 million), 12 percent up year-on-year.

And when State-owned China Southern Airlines Co Ltd said it paid nearly 12 million yuan ($1.76 million) to executives in the same year, up 49 percent year-on-year, criticism flew, especially because the airline's annual financial report in mid April declared a 4.829 billion yuan ($707 million) loss in 2008, its largest since it was listed in 2003.

Analysts said the executive pay hikes of companies such as China Southern might have been even higher if some hadn't reduced executive bonuses after pay limits directed by the Ministry of Finance (MOF) in February and April and the China Insurance Regulatory Commission (CIRC) late last year were imposed on all SOE financial institutions.

Makeshift measures

Though the pay limits only targeted financial institutions, some SOEs in other industries voluntarily cut executive compensations in various ways, including China Southern, which unveiled its new executive pay system in mid-May.

But some analysts have cast doubt on the effect of all pay limits, saying that unless the deeply ingrained problems of SOEs were resolved, the limits were makeshift.

“These pay caps were imposed due to public grumbling,” Song Kechun, an associate with Beijing-based Adfaith Management Consulting Inc, told the Global Times. “It's a makeshift measure for now.”

But Song added that a new SOE compensation system covering almost all industries will be unveiled by the government in June and said he was confident that the changes will address deeply rooted problems in the current system.

“What concerns most people is where SOE executive compensations will go after the financial crisis. It is hard to control without a complete reform of the present pay system,” Li Baoyuan, director of Human Capital and Management Center with Beijing Normal University, told Economic Daily.

Uppermost of the ingrained SOE payment problems are concurrent posts and an opaque payment system.

Many SOE executives hold concurrent posts and are compensated by multiple companies. And job transfers are common as well. A person may be an SOE executive today, a provincial official tomorrow and a highly paid employee of another company the day after tomorrow. “It adds to the difficulty of assessing their work performances,” said Song.

Executives' performance assessments should also be linked to their primary positions because they often care less about their pay than a prestigious position, said Professor Lin Xinqi, director of the Human Resources department of Renmin University of China.

“There should be a different and measurable assessment standard in view of different sources. And these standards should be made known to all employees of the enterprise,” explained Song.