China limits bonuses for bankers, joining global effort to reduce financial risk

China limits bonuses for bankers to manage risk

BEIJING — China has tightened controls on pay for its top bankers, joining global efforts to try to limit financial risks by linking longer-term performance more closely to compensation.

Chinese banks must withhold at least 40 percent of bonuses for top executives for a minimum of three years and can recover payments if poor performance causes losses, the China Banking Regulatory Commission announced Wednesday.

Britain and France also have linked pay for top bankers to long-term performance after criticism that compensation practices encouraged excessive risk-taking and helped to spark the worst global financial crisis since the 1930s.

China’s banks avoided the mortgage-related turmoil that battered Western institutions but regulators are trying to improve risk management as they liberalize the state-owned industry in hopes of making it more efficient and productive.

“We should learn advanced ideas from other countries around the world after the financial crisis to reform this remuneration system for financial institutions,” said a bank agency statement.

Bank bonuses will be capped at three times an executive’s base salary, the agency said. It said the rules apply to banks, trust companies and financial units of other government-owned enterprises.

China’s top bankers are paid modestly by Western standards but receive many times the salary of the average Chinese worker, which has fueled public anger. Top banking and insurance executives are appointed by the ruling Communist Party.

The chairman of China’s biggest commercial lender, Industrial & Commercial Bank of China Ltd. was paid 1.6 million yuan ($235,000) in 2008, while Citigroup CEO Vikram Pandit received $38.2 million that year.

Last April, the government ordered top Chinese bank and insurance executives to take a pay cut to promote economic fairness.

In other moves, regulators have told Chinese banks to step up scrutiny of borrowers to make sure loans will be repaid and to increase their capital base.

On the Net:

China Banking Regulatory Commission: www.cbrc.gov.cn