By Jiang Yunzhang (降蕴彰)
Issue 630, July 29, 2013
News, Page 5
Translated by Siutan Wong
Original article: [Chinese]

This is an extended abstract of an article that appeared in this week's edition of The Economic Observer, for more highlights from the EO print edition, click here.

In 2009, a dozen central government ministries launched regulations aimed at putting limits on the salaries of executives at centrally-administered state-owned enterprises.

However, according to Wen Zongyu (文宗瑜), director of the State-owned Economy Research Department at the Ministry of Finance, the impact of these policies has been very limited.

Executives at major SOEs are normally appointed by the Organization Department of the Central Committee of the Chinese Communist Party and the State-owned Assets Supervision and Administration Commission (SASAC). However, salary information for these executives isn't included in the annual reports published by SASAC. The "grey income" of these executives is also kept secret.

According to Wen, the government should require SOEs to publish how much their managers are paid in order to increase transparency and rein in excessively high salaries.

Wen also said reform of the executive employment system in SOEs should begin as soon as possible. According to Wen, although SASAC has often hired senior managers via an "open recruitment" method over the past few years, they've mostly been for deputy manager positions, which accounts for less than 5 percent of all the executives working in the major central SOEs.

Wen said that the next round of policies aimed at regulation salaries should focus on central government-controlled enterprises.

Wen believes that if restrictions can be implemented at these top-level companies, it will drive reform at SOEs at all levels across the country.

One proposal is to expand open recruitment for positions to more positions across various levels of management, including the executive level.

The new system would effectively avoid the current "black box" method of operation and allow the public to serve more of a supervisory role.

The 2009 guidelines required that the salary of an executive at the major central SOEs be no more than than 30 times the pay of an average employee at the company. However, during the past few years, some senior managers from central enterprises have received salaries much higher than this.

In April, media reported executive income information from 192 SOEs. It showed that more than 10 executives earned over 2 million yuan last year.
These executives either worked at top-level SOEs or subsidiaries of central enterprises.  Mai Boliang (麦伯良), president of China International Marine Containers (Group) Co. limited (中集集团), topped the list with an annual salary of 9.98 million yuan.

Annual salaries of officials in the fields of finance, communication, petroleum and tobacco are much higher than the limits stipulated, with some earning millions of yuan.

According to Su Hainan (苏海南), vice-chairman of the China Association for Labor Studies (中国劳动学会), the 2009 salary guidelines only impacted on some top-level central enterprises that were under the direct control of SASAC. It had little effect on subsidiaries or SOEs in cities other than Beijing.

As the chairman of major state-owned shipping company China COSCO, Wei Jiafu's (魏家福) income in 2010 was more than 400,000 yuan above what he should have been getting. Though he decided not to accept any pay for the latter half of 2011, the average wage of employees at the company increased by 24,000 yuan that year, despite the company registering a 10.4 billion yuan loss.

According to Wen Zongyu, top-level SOEs like China COSCO own many second-level or third-level SOEs. In order to avoid the government's salary restrictions, executives at these large SOEs may choose to get paid from subsidiary enterprises or other companies in which the parent SOE holds shares. Wen said that the government overlooked some loopholes like this when drafting the 2009 restrictions.

A plan for controlling the salaries of senior officials at state-owned enterprises (SOEs) will be submitted to the State Council within two to three months once opinions have been solicited from other ministries and the final draft has been completed, according to the Ministry of Human Resources and Social Securities.

The policy is being described as "differentiated "(差异化), as different rules will apply to various state-owned firms depending on whether they are classified as operating in a
competitive field or whether they're seen as a virtual monopoly. Rules over executive pay will also be determined by how a manager was hired - were they appointed or did they apply for the position and pass through a competitive screening process.

Salaries of administrative appointees and senior managers at some monopoly and high-income industries will be limited first. This is in order to first restrain abnormally large salaries and narrow the income gap within SOEs. Performance, as well as mid and long-term sustained development will also be taken into account.

Wen Zongyu said that unless we make clear what sectors state-owned firms should operate in , unless we get rid of the system that attributes administrative ranking to executives working at SOEs, unless we push ahead with real efforts to seperate out the roles of administration and business and unless we improve the system of property rights, then efforts to address the abnormal distribution of income among top level managers at SOEs will fail.

Links and Sources
Economic Observer: COSCO Switches Captain