Personal wealth has always been a private matter, yet the
salaries of top executives in listed companies could be a key
indicator to measure corporate governance.
"A rational compensation system can encourage or restrict top
management behavior and greatly reduce business risks," says Eric
Chai, a senior consultant with United States human resource company
Towers Perrin.
The assertion comes after the firm compiled a report on the
compensation trends for the top management of listed companies in
China.
The report found that executives of listed financial and real
estate companies enjoy much higher salaries than those in other
industries.
"This is attributed to their strong performance last year," says
Chai. "Intense competition for quality talent leads to more
attractive incentives."
Based on the study of 100 A-share, 100 H-share and 90 red-chip
companies with the largest market value in 2006, the report shows
that the average total annual compensation for a top executive hit
4.47 million yuan ($607,337) for red-chip financial companies, 1.41
million yuan for H-share financial institutions and 1.53 million
yuan for A-share financial firms.
The 2006 figure for real estate firms was 3.96 million yuan, 2.6
million yuan and 820,000 yuan respectively.
"As more H-share companies returned to the Shanghai and Shenzhen
bourses, the salary gap between (A- and H-share) companies is
shrinking," Chai says.
In fact it did more than shrink - the average total compensation
for presidents of A-share companies exceeded that in H-share firms
last year, the report says.
"To judge a compensation regime, we would like to see an
independent system, efficient release of information and the
relevance between top management salaries and interests of
shareholders," he says.
Though the compensation structure for three types of listed
companies is similar - often a 40 percent long-term incentives, 30
percent salaries and 30 percent bonuses - A-share companies were
often lacking independent audits and disclosure of information, the
report says.
Among the released information, less than 50 percent of A-share
companies had independent audits or compensation commissions. For
red-chip and H-share companies, the proportion was close to 100
percent.
The study found that 64 percent of A-share companies did not
disclose compensation information on their chairmen. Only 18
percent named independent or non-executive directors as the heads
of their compensation boards, compared with 75 percent for H-share
corporations and 68 percent for red-chip companies.
"That shows quite a number of A-share companies failed to meet
regulations requiring independent non-executive directors as a
majority to head the compensation board," says Chai.
The number of independent non-executive directors, however,
accounted for one-third of the board members in all three types of
companies, meeting regulatory requirements. Several years ago, the
proportion in A-share and H-share companies was much smaller, the
report says.
Speculation is now rife that the China Securities Regulatory
Commission and the State-owned Assets Supervision and
Administration Commission will soon introduce regulations governing
long-term incentive packages at State-owned enterprises, so many
more companies will have new long-term approaches next year, says
Chai.
Stock options and limited stock ownership are currently the most
widely used long-term incentives.
Li Ming, CEO of Sino-Ocean Land, a property company that made
its debut at Hong Kong exchange in late September, says one of the
most frequently asked questions during the company's road show is
whether a company has a system governing long-term incentives.
(China Daily December 17, 2007)
