Hefty payout deals draw public anger

By Bi Xiaoning (China Daily)
Updated: 2009-02-07 08:36

While America's "Gilded Age" is ending with US President Barack Obama's announcement of compensation caps on financial companies being bailed out by public funds, some Chinese State-owned financial firms are still testing public tolerance with astronomical executive packages.

The main target of a public outcry is Guotai Jun'an Securities Co, one of the largest brokerages in China, which is reportedly ready to give its executives hefty pay rises for 2008, when the financial services industry suffered major losses and the company itself saw a 24.24 percent decline in net profit, according to the Securities Association of China.

Guotai Jun'an announced it would earmark 3.2 billion yuan ($470 million) for "compensation and welfare expenses" for the past year, 57 percent higher than its compensation budget at the beginning of the year.

The decision, pending approval from its board of directors, was immediately chastised by the Chinese media as a move State broadcaster China Central Television described as "causing harmful social influence".

Guotai Jun'an employs a staff of 3,200 and is one of the largest firms in the country in both regular brokerage services and an investor in other companies.

If the earmarked amount is spent entirely as compensation and welfare expenses, the company's employees would each receive 1 million yuan, or 88 times an average urban worker's annual income in 2007.

According to a survey by Shanghai Securities News, 44 brokerage and financial companies spent roughly 20.9 billion yuan in compensation last year and some firms paid their staff 400,000 yuan each on average.

However, it is common for top executives in financial firms to earn in multiples of what regular staff are paid. The highest pay package in the industry in 2007 was as much as 66 million yuan for Ma Mingzhe, chairman of Ping An Insurance (Group) Co, which drew great ire on Internet forums.

This time, amid even more widespread public anger, an online survey conducted by Sina.com showed that about 90 percent of netizens said Guotai Jun'an's move was "outrageous" and "disgraceful".

When stock investors incurred losses of 200,000 yuan each on average in 2008, Guotai Jun'an's pay package is tantamount to robbery and is immoral, commented the Chinese-language newspaper Legal Daily.

"The compensation policy in State-owned companies should not be handled at will," said Professor Li Shuguang with China University of Political Science and Law.

Among Guotai Jun'an's shareholders, the largest two are in the State sector: Shanghai State-owned Assets Management Co and Central Huijin Investment Co. They hold more than half of the company's stock.

On Friday, the Ministry of Finance announced it would soon release new standards for evaluating performances of State-sector financial institutions and link them to compensation schemes.

On Jan 13, the ministry issued a circular suspending State-sector financial companies' stock option incentives and employee stock ownership plans; and told them to act "reasonably" to avoid widening income gaps.