The unequal and chaotic salary system in State owned enterprises
(SOE) has triggered arguments on how to control and regulate
salaries of senior management there.
One employee in an SOE complained that after adding up all his
salary items, he makes no more than 3,000 yuan a month, while his
SOE's general manager is awarded over 500,000 yuan a year.
Furthermore, because managers can find income in other channels,
the number could be even bigger.
A survey in 2002 showed that average salary ratio between
executives and other employees stood at 12.7 to 1. That ratio
increased to 13.6 to 1 in 2003, while in some extreme cases, it was
as high as 27.6 to 1.
The argument is that managers in SOEs are mainly appointed
rather than selected through open voting, and the performance of
SOEs in most cases reflects little of their management skills
because SOEs are essentially invincible. As a result, ordinary
employees find it unfair that the appointed executives are getting
such incredibly high salaries.
The State-owned Assets Supervision and Administration Commission
of the Sate Council suggested in a circular that SOEs should focus
on efficiency as much as on equality. Furthermore, it said salary
differences between executives and workers should not be too large,
so as to motivate the management and ordinary employees alike.
According to current law, executive salaries should not exceed
14 times of those of workers. Su Hainan, head of Institute for
Labor and Wage Studies, said we can even drop the 14 times cap for
SOE executives once SOEs embrace open selection for its management
and institute management appraisal systems.
Presently, most SOE executives decide their own salaries, which
is strange but convenient for the management to award themselves
high salaries.
Lack of oversight has caused a lot of problems. To cope with the
problem, experts suggest setting up a pay and appraisal commission
under the director board to design salary schemes and evaluate
performance. SOEs should give a copy of their salary schemes to the
State-owned Assets Supervision and Administration Commission of the
Sate Council and also diversify the members of the commission. The
members should include people ranging from independent board
members and employee representatives to experts outside the
companies and exclude management.
Many suggest that the current salary system is also unfair
because right now there is no connection between company
performance and executive salaries in SOEs, which gives rise to
strange situations in which executives are receiving bonuses and
benefits while companies are losing money.
In spite of existing laws requiring SOEs to link their salary to
company performances, company managers are not under any scrutiny.
The law is not enforced well because executives are able to judge
their own performance.
To deal with the problem, experts also suggest establishing a
long-term motivation mechanism, on the one hand by lowering basic
salary and increasing performance salary and on the other, by
raising the ratio of equity incentive to total salary.
(China Daily July 25, 2007)
