China’s securities firms rein in pay packets as pressures mount
ALTHOUGH Chinese securities firms’ pay packets are still among the highest in the country, they are now in the shadow of an industry-wide pay cut, under pressure from the government to rein in excessive remuneration and hobbled by a tightened regulatory grip on initial public offerings (IPOs) amid an ailing stock market.
“In the wake of losses in the first half of last year, the research department (of a major securities company) started to cut salaries across the board and lay off staff in a roundabout way,” a former employee told Caixin. “The unit originally had more than 200 people, but now has only about 150.”
Meanwhile, speculation about a government-enforced pay cap has run rampant in the industry. Major financial institutions controlled by a central government-administered group have borne the brunt, Caixin previously reported.
Hefty compensation in the industry has become increasingly controversial following the pandemic, as unemployment and income insecurity have become more significant points of concern amid the economy’s unstable recovery. President Xi Jinping’s “common prosperity” policy has also been pushing securities firms to adapt.
Financial reports show they are doing just that.
Annual reports from half of the 44 securities firms listed on the Chinese mainland, published by Apr 1, show that their average annual remuneration stood around 590,000 yuan (S$112,033) in 2023, down 3 per cent year on year and more than 8 per cent compared with 2021.
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The reports also painted a dire picture of the industry’s financial performance. The 22 firms’ total revenue fell 1.8 per cent last year, while their net profits attributable to their parent companies dropped 7.1 per cent, marking the second consecutive year of lower profitability.
Securities brokerages that used to offer some of the highest remunerations – Citic Securities, China International Capital Corp (CICC), China Securities and Huatai Securities – last year reported declines in average salaries for the second straight year. Industry leader CICC slashed its average pay for employees by nearly 12 per cent, according to company disclosures.
China Securities, Sealand Securities, Everbright Securities and China Merchants Securities were among those whose employee count decreased by several hundred last year.
“The annual reports were just a reflection of the experience last year. This year’s situation might get worse,” a veteran securities analyst told Caixin. “Departments with large headcounts but poor financial performance will face more severe pay reductions and job cuts.”
Investment banking headwinds
The investment banking business was one of the areas that suffered, as the flow of IPOs waned amid a rout in the stock market.
Securities firms experienced a stage of aggressive recruiting after the launch of the tech-savvy Star Market in Shanghai in 2019, which led to a temporary expansion of the domestic IPO market.
However, winter arrived in the mainland IPO business last year amid a broader slump in the stock market and a foreboding suggestion by the China Securities Regulatory Commission (CSRC) in August that it might limit the number of new listings as part of measures to arrest the slump. The number of IPO registrations has dropped since then.
Last year, the number of mainland IPOs and the total amount raised dropped 30 and 40 per cent, respectively, according to data compiled by KPMG China.
Caixin calculations based on disclosures from the 22 securities companies show that the net revenue generated from their investment banking business shrank by nearly a quarter last year compared with 2022.
CICC, once a front runner in investment banking, saw its net revenue from the business nearly halved in 2023. Citic Securities, another leading player in this territory, reported a 27 per cent slide.
In view of the lower revenue, the investment banking department in Citic Securities has recently undergone a personnel restructuring, with the workforce originally installed for IPOs relocated to other projects such as debt financing and mergers and acquisitions (M&A), sources close to the company told Caixin.
“This adjustment aims to optimise staff utilisation,” said a person close to the matter. “Roughly 100 people went to the debt financing unit, and dozens were transferred to the M&A business.”
Meanwhile, CICC’s investment banking department has launched a structural overhaul to avoid redundancy, sources said. It has consolidated IPO teams for the same industry that were previously scattered across different regions.
A more radical measure has been adopted by Guotai Junan Securities, which started scaling down its investment banking department in March, with at least 10 per cent of the workforce expected to be laid off, multiple sources said.
“The IPO team (in the department) has taken a hard hit with a drought in projects,” one source close to Guotai Junan Securities said. “The M&A and debt financing teams are somehow in a better situation, yet competition is intense (across the industry).”
This year, regulators continued to tighten their grip on IPOs amid protracted market woe, with the CSRC vowing to strictly hold the IPO threshold in a bid to bolster market confidence. Last month, the regulator raised the bar for companies seeking to list on the Star Market.
State firms bear the brunt
As the pay cuts and downsizing sweep the sector, state-owned players are expected to take a heavy blow, a senior executive with a major securities company told Caixin.
Multiple industry executives recently told Caixin that the country’s financial authorities had discussed an annual pay cap of three million yuan, which is likely to apply to state-owned financial institutions.
“Although there haven’t been official documents released, both senior executives and employees paid too handsomely are expected to face the cap,” one source said.
Major financial institutions controlled by a central government-administered group have already limited salaries to three million yuan for last year by suspending paying anything beyond that, according to people with knowledge of the matter.
Last year, Chinese securities firms’ executive salaries exceeding three million yuan were rare. Annual reports from the 22 mainland-listed brokerages, published as at Apr 1, show that 309 out of 345 individuals in their top ranks, excluding independent and non-executive board members, were paid a salary of less than three million yuan for the year. CAIXIN GLOBAL
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