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)