China's 'common prosperity' drive slashes pay and perks for investment bankers

Haitong International Securities

29/07/2022 04:09

By Selena  Li
    HONG KONG, July 29 - China's well-heeled financial
dealmakers are getting a crash course in austerity with pay cuts
and perks reined in, as their state-owned employers respond to
Beijing's "common prosperity" drive, eight people with knowledge
of the matter said.
    State-owned investment banks including China International
Capital Corp (CICC)  3908.HK  and Citic Securities  6000030.SS 
have implemented pay cuts this year as well as delayed bonus
payments to their staff, four of the people said. The cuts, in
some cases, amounted to as much as 60%, they said.
    Others such as state-owned China Merchants Securities
 600999.SS  have slashed travel and entertainment allowances
since the beginning of the year, two other people familiar with
the matter told Reuters.
    "Capping the salary of the financial industry is in line
with the broad trend, and it is also part of the common
prosperity drive," said Xia Chun, chief economist at wealth
manager Yintech Investment Holdings in Hong Kong.
    Despite China's economic slowdown, the financial sector was
one of the few lucrative industries for professionals after
regulatory crackdowns on two other high-paying sectors -
technology and property - led to job losses.
    Pay cuts for investment bankers in China started last year
in response to a business downturn as the economic slowed, but
industry watchers said the trend has gained momentum this year
under the "common prosperity" drive. That could affect talent
retention at a time Western investment banks are expanding in
China.
    The trend of slashing salaries was reinforced after China's
securities industry association urged the country's brokerages
in May to set up a sound remuneration system, warning that
excessive, or short-term incentives could lead to compliance
risks.  urn:newsml:reuters.com:*:nL2N2X80FJ
    The trigger was President Xi Jinping's renewed drive for
"common prosperity", launched last year as an effort to reduce
income inequality that threatens long-term economic growth and
even the legitimacy of Communist Party rule.
    Although official rhetoric on "common prosperity" may have
ebbed slightly in recent months because of the slowing economy,
sources said perks and pay at banks and financial companies
remain under pressure.
    Investment bankers are going to see a "thorough check on
pay" with a spotlight on headline-grabbing remuneration, said a
senior executive at a state-owned investment bank, declining to
be named due to the sensitivity of the topic.
    The executive said "common prosperity" was no longer a
concern only for central government-owned financial firms but
had trickled down to state investment banks and become the
"guiding spirit" for pay talks this year.
    All the sources with knowledge of the compensation changes
at investments banks declined to be named as they were not
authorised to speak to the media.
    CICC and Citic did not respond to Reuters' requests for
comment.
    China Merchants said in an emailed statement: "Affected by
COVID-19 and other factors, business trips across the whole
industry were significantly reduced, and the company's travel
expenses have dropped accordingly." 
        
    ECONOMY CLASS    
    Thirteen of China's 30 highest paying investment banks
lowered pay packages of their senior management and board
members in 2021 from a year previously, according to bank
filings compiled by Reuters, the latest data available.
    That figure is expected to rise this year as more firms
adopt the "common prosperity" drive.
    A senior investment banker in China could earn between three
million and 10 million yuan ($445,000-$1.48 million) a year in
total remuneration, excluding stock incentives, industry sources
said.
    A Shanghai-based senior equity sales executive at a
state-owned investment bank said he was one of many bankers in
the sector whose pay was cut last year, while company profits
jumped more than 25% in the same period. The banker declined to
give details.
    He said the two highest-paid managers at his firm with more
than 10 million yuan each in 2021 pay appeared to have
volunteered to take a pay cut, although that could have been
forced on them because of the scrutiny on high flyers.
    The executive also said his employer gave verbal guidance to
staff in January not to post photos depicting a lavish lifestyle
on social media after a junior analyst at a rival firm drew
public criticism for posting her annual pay slip of 2.24 million
yuan.
    On average, a Shanghai professional from outside the finance
industry earned 78,000 yuan in disposable yearly income in 2021,
according to official municipal authority data.
    Along with pay and bonuses, perks have also been scaled back
in the finance industry.
    An internal CICC memo, issued in April and seen by Reuters,
said all staff may only fly economy domestically as well as
overseas from May 1. Previously, its managing directors and
executive directors could fly business at home and abroad. 
    CICC did not comment on the memo.
    ($1 = 6.7462 Chinese yuan renminbi)

 (Reporting by Selena Li in Hong Kong and the Shanghai Newsroom;
Editing by Sumeet Chatterjee and Raju Gopalakrishnan)
 ((Selena.Li@thomsonreuters.com; +852 39525868))