China Caps Financial Institution Staff Income to $137,309 to Promote Common Prosperity
China plans to impose an annual income cap of 1 million yuan ($137,309) on staff at central government-owned financial institutions, according to three sources. This move expands the government's campaign against excessive compensation amid economic slowdown.
Individuals whose income currently surpasses 1 million yuan will face salary reductions. Middle and senior managers at 27 financial giants, including the "Big Five" banks, six leading insurers, and four major bad debt managers, are expected to see their incomes halved as part of a comprehensive compensation structure overhaul.
According to two sources with direct knowledge of the plan, the majority of the cuts will result from reduced bonuses. The extensive wage reduction exercise within the $67 trillion finance sector is anticipated to commence as early as next month, although staff have not yet been informed of the reasons.
The cap aligns with the government's "common prosperity" initiative initiated in 2021 to address social and income inequality amidst slowing growth in the world's second-largest economy. State-owned and private financial firms have since proactively reduced salaries and bonuses, discouraging ostentatious displays of wealth among staff.
However, income caps at state-owned financial institutions could hinder the retention of top talent, as private-sector competitors offer competitive compensation packages. The pay cap was first reported by Caixin, citing unnamed regulatory and banking sources.
Executives at subsidiaries of the targeted firms, including investment banks and asset managers, will have their income capped at 3 million yuan, according to the three sources. Currently, some senior executives at subsidiaries earn up to 5 million yuan, as revealed by stock exchange filings.
Neither the Ministry of Finance, the targeted firms' largest shareholder, nor the Ministry of Human Resources and Social Security have responded to Reuters' requests for comment.
Pay Disparity
China is also reducing salaries by approximately half at the central bank and two financial regulators as part of a reorganization initiated in 2023 to align incomes more closely with other civil servants, as previously reported by Reuters.
The timing of these measures contradicts the government's efforts to boost consumption and revive economic growth. Just this month, millions of government workers received an unexpected monthly increase of roughly 500 yuan, beneficiaries told Reuters.
The new cap at financial firms will primarily impact department heads who command premium salaries for leading front-office operations and driving revenue growth. Their income often exceeds that of chairs and presidents, who are subject to compensation caps ranging from 700,000 yuan to 900,000 yuan. To rectify this disparity, a new rule will prohibit subordinates from receiving higher compensation than their superiors at the designated firms.