In order to prevent a brain drain from big state owned enterprises and to bring the initiative of its top executives into full play, China's State-owned Assets Supervision and Administration Commission will standardize the annual payment system of its chief executives.

In China there has been a tide of restructuring in the economy through mergers and acquisitions of once State-owned enterprises, or SOEs, over the past few years. However, even the biggest SOEs have been feeling the pressure to reform and boost efficiency.

To improve the efficiency of these enterprises and to bring the initiative of their top executives' into full play, the central authorities are to regulate the current annual payment system. Director of the State-owned Assets Supervision and Administration Commission, Li Rongrong had this to say.

"First of all, we will standardize the income of chief executives of state-owned enterprises so as to make payment criterion approximately the same within one particular industry in two or three years. And we will implement a comparatively more complete and standard annual payment system on this basis."

He added that the annual payment system for top executives will be made up of three parts, namely, basic wages, performance related pay and middle or long-term incentives such as stock options and pension benefits. As for the evaluation of the performances of senior executives, key financial indicators such as gross profit and return-on-the-net-asset ratio will be used.

The evaluation will be graded on a scale from A to E, with the C grade being the pass level. Officials who are graded above the C level are expected to see a rise in their compensation package and those who are below that level will be punished by having their annual salary reduced.

In fact the Commission is now directly supervising 189 of the biggest and central State Owned Enterprises. In the past, the payment of their chief executives was decided by the enterprises themselves and the standard varied from one to another. To reduce the gap between different enterprises, the Commission will start to reform the payment system this year. And the main task will be to standardize basic wages and the performance related payment of top executives.

(CRI.com May 10, 2004)