China to limit ‘excessive’ incentives for bankers in pay curbs

CHINESE regulators told the nation’s securities industry to avoid handing out “excessive” short-term incentives to employees and smooth out the pace of pay disbursements, in their latest effort to rein in risks and promote “common prosperity”.

Incentives and short-term rewards that are too big will trigger compliance risks, according to recent guidelines published by the Securities Association of China. Pay of bankers shouldn’t be directly linked to the revenue they bring in for underwriting deals, while senior executives must be held accountable financially if they violate regulations or cause excessive risk exposure, the statement said.

The directives may pose another hurdle for global banks that are scrambling to hire talent in China to expand in everything from investment banking and trading to wealth management. Goldman Sachs Group and JPMorgan Chase & Co are now under the direct oversight of Chinese securities watchdog after winning approval to own 100 per cent of their securities ventures onshore.

Policymakers have already pressured the nation’s biggest state-owned financial groups to reduce salaries and costs to support China’s recovery from the pandemic over the past 2 years. Chinese brokers including Citic Securities and CSC Financial last year made broad cuts to travel budgets for junior bankers and senior directors.

Chinese authorities have repeatedly warned against disorderly expansion of capital as part of President Xi Jinping’s quest for “common prosperity”, a wide-ranging campaign to distribute wealth more evenly. Along with the year-long crackdown on private businesses across technology, education and real estate, the curbs have cast a chill on both local and foreign investors, erasing more than US$1 trillion of market value at one point.

Under the latest guidelines, a securities firm must take into account the compliance requirement and shareholders’ interests when formulating its compensation structure with the aim to balance pay at different positions and levels. They should also pace the salary payment arrangement by taking into consideration the impact of market fluctuations as well as industry development.