SOE reforms to cut executives' pay and perks in China（在线收听）

Chinese State-owned enterprises’ managers are getting paycuts, and investors are monitoring the pilot pay reform program because SOEs are usually blue chip stocks.

Central State-owned enterprises launched a pilot pay reform at the beginning of this year. Soon the program will be implemented for SOEs nationwide.

The salary system for SOE executives has long been criticized for lacking transparency and not reflecting the performance of executives. 

Some executives have gone away with their pockets full even when the SOEs they are  managing have gone bankrupt.

"We designed an indicator to measure each SOE executives’ performances. We consider the difficulty of managing a specific SOE in China based on the competitiveness of the industry and the scale and profitability of the firm. SOE executives' salaries are based on their indicators," said Qiu Xiaoping, vice minister of Ministry of HR and Social Security.

The top managers' salaries in SOEs covered by the reform will be determined by the board under a uniform standard instead of being overseen by different government departments.

"At central-administered State-owned firms, many of the executives enjoy too many benefits. Now we put restrictive rules to only allow them to have basic pension and healthcare insurance packages," Qiu said.

The regulation stipulates that a manager's basic salary will be two times the average salary of an enterprise's employee, and will be performance-based. They will take into account the industry conditions and the company's revenue and profit. 

The reform is also about disclosure: SOE managers' salaries will be made public to avoid hidden incomes. The regulation states that SOE executives who hold part-time posts in the company's affiliates should not be compensated financially and that retired executives should not continue to receive salaries from the companies they used to work for.

"We will put the disclosure of SOE executves' income into companies' information disclosure routine. Companies' boards of directors and shareholders should also play a supervising role in the process," Qiu said. 

To date, 72 SOEs, roughly half of central SOEs, are subject to the new salary policy. Central SOEs, such as energy giant PetroChina and mobile carrier China Mobile are some of China's largest and most powerful companies.

The reforms will have wide-ranging ramifications across the economy.