A time for sharing

Offering stock to employees

Forbes magazine ranked Xi Jinping as the third most powerful person in the world this month, behind Vladimir Putin and Barack Obama. But the Chinese president is down at the other end of the ranking that scores world leaders by how much they earn. The People’s Daily recently revealed his official income is about Rmb10,000 a month, or less than $20,000 a year. In comparison, The Economist estimates that the American president has an annual salary of $400,000. Hong Kong’s chief executive, meanwhile, takes home about $550,000 a year.

Of course, Xi’s remuneration doesn’t include some other intangible perks, like the medical services that keep most of China’s former leaders lively well into their nineties.

(In another state media gem last year, one of the secrets for their longevity was revealed as dietary avoidance of “animals with four legs”.)

Nor is it just in China’s political ranks that its leaders trail most of their international counterparts. The income gap between Chinese bankers and overseas ones is even greater. This contrast between bankers’ incomes and their economic influence has even been blamed as a motivating factor for some of the corruption at state lenders.

One of the attempts to remedy the situation was a plan to introduce stock incentives. However, that was halted after the 2008 financial crisis, when regulators feared that bankers would react by supercharging their loan growth. But, as WiC first reported back in April, Beijing is beginning to see the benefits of a more relaxed stance on employee ownership, particularly as a means to lift a stock market in which state lenders carry a heavy weighting.

Earlier this month state-controlled China Minsheng Banking Corp announced a plan to sell new preference stocks to “key employees”. It was soon being classed as an “innovative recapitalisation plan” by Financial News, a newspaper run by the People’s Bank of China.

Minsheng will raise up to Rmb8 billion from the share sale to replenish its core capital. Staff buying into the scheme cannot sell their shares for the next 36 months.

“This will open up a new funding source for banks while bundling employees’ personal interest with the shareholders,” Financial News reckoned.

The bank had about 55,000 employees as of June and no more than a tenth of them seem likely to participate in the pilot scheme. But the 21CN Business Herald expects the plan to be expanded to Minsheng’s junior staff, as well as across the banking sector in general.

“It is likely to lift the curtain for Chinese banks to introduce stock incentives to employees,” the newspaper has suggested.

Minsheng’s fundraising plan is still awaiting the blessing of the relevant regulators. But the prevailing policy mood looks like favouring moves to incentivise employees at state firms, with staff ownership seen as an integral part of the so-called mixed-ownership reforms (see WiC230 for more on the concept).

In fact, a number of non-bank giants including Ping An Insurance and dairy producer Yili Group have already unveiled similar share schemes. Shanghai International Ports (SIPG), one of the assets controlled by the Shanghai government, has also announced a plan to sell Rmb1.8 billion worth of new shares to 16,000 staff, or 70% of its workforce.

SIPG’s initiative raised eyebrows because the port operator carries a hefty market value of Rmb127 billion, and it could prove to be the most extensive staff ownership scheme yet. The move is also likely to dilute the Shanghai government’s majority stake. But the hope is that management will then run the business more efficiently, with its staff better incentivised to perform in the interests of all the company’s shareholders.

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