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Wall Street Journal, April 10, 2009 article


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MANAGEMENT   |   APRIL 10, 2009, 4:38 P.M. ET

China Limits Executive Pay

BEIJING -- China's government disclosed that it had set limits on executive pay for 2008 at state-owned financial companies, the latest effort to address public concern over pay at companies controlled by the country's nominally socialist government.

Total compensation for last year was capped at 90% of the amount executives received in 2007, the Ministry of Finance said in a brief statement. For companies whose revenue fell last year, the limit was set at 80%, it said. The statement, issued late Thursday, said the new rule had been issued "recently," but didn't elaborate. A ministry spokesman declined to comment Friday.

Executive pay has become a hot-button issue in the U.S. and other countries amid the global financial crisis. In China, salary levels have risen in recent years with rising profits, but executives in the financial sector generally earn a fraction of what their counterparts at western companies make even though China's banks are among the largest in the world and have largely avoided the losses that crippled many foreign counterparts. Low compensation levels have been blamed, in part, for several prominent corruption scandals at Chinese government enterprises in recent years.

Still, compensation in the financial sector has been a contentious subject in China, where almost all major banks and insurers are majority owned by the government, and most top executives are appointed by the ruling Communist Party. The issue has become more sensitive since last year as plunging exports and property prices have led to large losses of factory and construction jobs, exacerbating a wealth gap that had already widened sharply in recent years.

"In recent years, with the continued deepening of reform in China's financial sector compensation levels in the industry have increased rapidly," which has "clearly widened the gap with average levels in society and among other employees," the finance ministry said in its statement. The ministry's pay caps were designed mainly to "help the fair distribution of income in society" and "protect the interests of the country and of shareholders," it said.

The ministry's directive appears to be reflected in the compensation packages already disclosed by some of China's biggest financial institutions. Industrial & Commercial Bank of China Ltd., the country's largest lender by assets and the biggest in the world by market value, reported last month that Chairman Jiang Jianqing received 1.61 million yuan, or about $235,000, in total compensation last year, down 10.3% from 2007. Industrial & Commercial Bank's net profit last year jumped 36% to 110.84 billion yuan. In 2007, Mr. Jiang's total compensation rose 38%.

Concern over executive compensation isn't limited to the state sector, and not all China's financial firms have fared so well. Last month, Ping An Insurance (Group) Co. of China Ltd. one of the few major financial companies in China that isn't majority owned by the central government said Chairman Ma Mingzhe had decided to forgo his salary for 2008 entirely. In 2007, Mr. Ma received 66 million yuan, or about $9.6 million, in compensation, a level that prompted criticism from some Chinese commentators. Ping An this week reported a 99% plunge in net profit for last year, thanks to an impairment charge of about $3.33 billion on its stake in Dutch-Belgian financial firm Fortis NV and to losses on investments.

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