China’s stock-market regulator urged brokerages and fund houses to improve their salary and incentive systems to prevent executives from over-chasing short-term profits to boost their bonuses.
The Chinese Securities Regulatory Commission (CSRC) said in a statement on Tuesday that the Securities Association of China and the Asset Management Association of China had recently unveiled guidelines about the management of remunerations for senior executives at securities firms and fund companies.
The CSRC stressed that it fully respected the operational decision-making of mainland-based foreign financial institutions but added that the same rules were applied to both local and foreign firms.
A commentary published by a state-owned newspaper said investment firms that raised funds publicly should fulfill society’s value of “common prosperity” by capping their executives’ remunerations, especially when their clients were losing money.
On August 17 last year, President Xi Jinping, who is also general secretary of the Communist Party of China, said at a meeting of the party’s financial and economic affairs committee that China should aim to promote “common prosperity.”
On October 16, Xi wrote in an article published by Qiushi Journal, a party theoretical publication, that China would achieve “common prosperity” by reforming its tax and household registration systems, pushing antitrust enforcement and improving public services to reduce the national wealth gap.
He added that China would “uphold and develop socialism with Chinese characteristics” and “promote the building of a human community with a shared future.”
On May 13, the Securities Association of China unveiled a guideline to ask all the mainland-based brokerages and their subsidiaries to improve their salary systems to ensure stable and sustainable growth and bear the social responsibility.
It said securities firms had to consider different factors including their shareholders’ benefits, operational risks and development plans when setting up their salary systems for staff. It said they should also consider whether their salary packages would be affected by industry cycles or have any impact on the markets.
It said brokerages should encourage their employees to set up their personal pension fund accounts and contribute to the country’s pension fund system. The CSRC said in late April it planned to launch a new national pension scheme on top of the existing Social Security Fund system.
Last Friday, the Asset Management Association of China published a guideline to limit the remuneration of fund houses’ executives.
It said senior managers and department heads should use at least 20% of their annual bonuses to buy their fund houses’ publicly offered funds while at least half of the money should be invested in equity funds, unless their companies did not have such products. It said fund managers had to use at least 30% of their bonuses to buy their fund houses’ publicly offered funds, while the funds they were managing were of higher priority.
Both associations said brokerages and fund houses should use self-discipline in following the guidelines and would be punished if they failed to do so. It said serious violations of corporate governance would be reported to the CSRC for investigation.
According to media reports, Chinese regulators had held meetings with top global banks, including Goldman Sachs Group, Credit Suisse Group and UBS Group, in Shanghai and Beijing this year and asked them to disclose their senior executives’ pay details and suggested they implement pay curbs.
However, the CSRC said in a statement on Tuesday that no such meetings had been held. It said the media reports were not factual.
It said the Financial Stability Board, an international body that monitors the global financial system, concluded that during the 2008 global financial crisis, many large financial institutions had neglected their financial risks by paying high salaries to executives to chase short-term profits. It said the European Union and the United States had later launched rules to limit executives’ remuneration.
The CSRC said it supported the Securities Association of China and the Asset Management Association of China to launch relevant guidelines for their members.
It said that so far 11 foreign brokerages and fund houses had been allowed to operate in mainland China and that while it fully respected their operational decision-making, the same rules were applied to both domestic and foreign institutions.
Xiong Jinqiu, a columnist of the National Business Daily, said brokerages and fund houses should cap the salaries of their executives and managers to respect society’s value of “common prosperity.”
Xiong said it was obviously not “common prosperity” if fund managers could receive huge bonuses while their clients suffered losses. He said “common prosperity” could be achieved only if all people, instead of a small group of them, got rich together in a fair income-distribution system.
He said fund companies should check whether their fund managers had participated in irregular investments and correct excessive salary payments if needed.
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