SOE executives to get shareholding incentives
(Xinhua)
Updated: 2005-08-21 08:49

Executives of China's state-owned enterprises, who have been earning salaries for their work, is expected to become shareholders of their own enterprises.

China will speed up the move to design and issue long and middle-term encouragement policies for executives of central state-owned enterprises, which should be substantial, effective market measures such as shares or options, said Li Rongrong, director of State-owned Assets Supervision and Administration Commission (SASAC) under the State Council, on Friday.

This is the first time for China to raise such a suggestion at the government level to offer shareholdings for managers of 169 central state-owned enterprises as encouragement.

Offering shareholdings for managers will be first practiced in enterprises listed overseas, then in those listed at home and finally in other central state-owned enterprises, an official with the SASAC told Xinhua.

Enterprises first chosen should be those of standard corporate governance and proper management, he said.

According to the official, the revision of the Corporate Law and the issuance of the notice regulating management buyouts by SASAC constitutes a legal premise for the establishment of a shareholding encouragement system.

The SASAC, along with the Ministry of Finance, jointly issued the provisional regulation in April this year prohibiting management buyouts of state assets of large state-owned businesses, but allows such transactions at small- and medium-size ones.

The regulation was issued when the reform of changing the split-share structure in China's capital market has started, the official acknowledged.

There has been existing a large volume of non-tradable state and corporate shares in China's capital market. Before the reform was launched this May, only about one-third of the shares in domestically listed companies are floated on the market, which has been blamed as one of the major causes of China's sluggish stock markets and putting public investors at a worse position than the actual controllers of the listed companies.

Taking shareholding offer as an encouragement refers to permitting managers to hold certain percentage of increased shares of the enterprises, including those from IPO or refinancing, he said.

"In fact, some enterprises listed overseas have begun such practice. What we are lacking now is just particular measures," said the official.

However, he added, despite such an encouragement itself being beyond dispute, the biggest obstacle is China's current environment, such as a share market incapable of objectively reflecting investment value of companies.

As for the percentage of shareholding, the official said that different percentage will be implemented in different companies, but there will be no an upper limit.

Pay for managers of China's state-owned enterprises has been short of a reasonable standard as some executives managing an enterprises of dozens of billion-dollar capital earns only hundreds of thousands of dollars a year no matter whether the enterprise's profits are good or not.

In 2003 and 2004, the SASAC has issued provisional regulations for work assessment and pay standards of managers of central state-owned enterprises which links their pay to the assessment results.

In 2004, the first year when the assessment and pay system was performed, 25 large state-owned firms got A, the best level, while 13 enterprises got D or E for failing to reach the goal.

Executives of enterprises getting an A level, will get an annual salary of two or three times more than ever, said Xiong Zhijun, director of Enterprise Distribution Bureau of SASAC.

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