China’s recent announcement that it will cut by up to 30 percent the salaries of top executives of central state-owned enterprises has raised concerns in business circles, with some saying that it is another indication of government intervention in the market while others fear it could lead to a brain drain in SOEs.
The pay cuts mainly target senior executives in state-owned public utility firms, state-owned monopolies, and those representing government administrative agencies in state-owned firms, China Business News reported on Wednesday, citing an unnamed person with knowledge of the matter.
Salaries of top executives of central SOEs in competitive sectors will still be decided by the market, the newspaper said.
A report by China News Week in June 2013 could shed some light on the issue. Citing Xu Baoli, director of a research department under the State-owned Assets Supervision and Administration Commission (SASAC), the paper said top leaders of the first 54 of the 115 central SOEs listed on SASAC’s website are appointed by the party’s Central Organization Department and often carry the rank of deputy minister other than the company titles. Other senior managers in these firms are appointed by SASAC, Xu said.
“The identities of these top leaders in central SOEs are sometimes not clear,” China Business News quoted its source as saying. “They are [theoretically] public servants as they hold government administrative positions but they get paid like those in for-profit institutions.”
Some of these senior executives later become party cadres after earning enough money and stepping down from their positions in central SOEs. Meanwhile, other party cadres are appointed to central SOE management.
As of 2013, the country’s five major state-owned banks — Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications — were paying their top executives an annual salary ranging from 900,000 yuan to 1.15 million yuan (US$146,540 to US$187,250), far more than the newly set ceiling of 600,000 yuan.
In the oil industry, the 13 top executives at China National Petroleum Corporation had an average annual salary of 840,000 yuan last year while the 12 top executives at China Petroleum & Chemical Corporation earned an average of 775,000 yuan.
Aside from the usual perks and privileges of being a senior executive in a large corporation, many of them also receive welfare benefits because of their administrative titles. This has caused “a lot of problems”, the newspaper said.
In some cases, even when the SOE reported substantial losses, the salaries of its senior executives increased.
Although the implementing guidelines for the pay cuts have yet to be released, banking sources said the new policy may not substantially affect the executives’ take-home pay.
“If the salary cap only applies to their basic salary, the impact would be much smaller because bonus, welfare and other benefits account for a big part of their income,” a banking source told the newspaper.
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