China is planning to introduce a 1 million yuan ($137,309) limit on the annual earnings of employees at central government-owned financial institutions, according to three sources. This move is part of a broader effort to curb excessive payments amid an economic slowdown.
Individuals earning above 1 million yuan will see reductions in their pay, particularly middle and senior managers who could see their income cut by as much as half as part of a restructuring of compensation practices at 27 major financial institutions, including the "Big Five" banks, six top insurers, and four major bad debt handlers.
The majority of the reductions will come from trimming bonuses, shared two of the informed sources, who chose to remain anonymous due to the sensitivity of the issue.
This extensive reduction in wages within the $67 trillion financial sector is scheduled to begin as early as next month, with employees currently unaware of the impending adjustments, according to the sources.
The imposed cap aligns with the government's "common prosperity" campaign, initiated in 2021 to tackle social and income inequality during a period of slower growth in the world's second-largest economy.
While both state-owned and private financial institutions have already taken steps to reduce salaries and bonuses and discourage ostentatious displays of wealth like expensive clothing and accessories, the income restrictions at state-owned financial entities might pose challenges in retaining top talent, as private competitors offer attractive pay packages.
Reports of the salary restrictions at central government-owned financial firms were first disclosed by news outlet Caixin, citing undisclosed regulatory and banking sources.
At subsidiary levels of the targeted companies, including investment banks and asset managers, executive compensation will be capped at 3 million yuan, as also confirmed by the three sources.
Currently, some senior executives at these subsidiaries reportedly earn up to 5 million yuan, as per stock exchange filings.
Despite requests, the Ministry of Finance and the Ministry of Human Resources and Social Security did not respond to Reuters' inquiries.
Moreover, China is contemplating cutting salaries by approximately half at the central bank and two financial regulators in a renovation effort that commenced in 2023 to bring incomes more in line with those of other civil servants, as per individuals familiar with the matter.
This timing appears contradictory to the government's endeavor to increase consumer spending to stimulate economic growth. Notably, earlier this month, millions of government employees received an unexpected monthly raise averaging about 500 yuan.
Among those most impacted by the new income ceiling in finance firms will be department heads who currently command high salaries for overseeing front-office operations and driving growth, according to two sources.
In certain instances, the department heads earn more than chairs and presidents, who are already under compensation limits ranging from 700,000 yuan to 900,000 yuan, the sources noted.
To rectify this discrepancy, a new regulation will prevent subordinates from earning a higher salary than their superiors at the targeted firms, as indicated by the sources.
($1 = 7.2828 Chinese yuan renminbi)