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In China, disparity takes a great leap

June 10, 2007|Don Lee | Times Staff Writer

SHANGHAI — Deng Xiaoping said it's OK for some people to get rich before others, and Chinese executives are taking the late paramount leader's dictum to the bank.

Though they're still earning far less than their U.S. counterparts, China's corporate bosses saw their salaries jump an average of 20% last year, according to a survey of 1,400 companies listed on Chinese stock exchanges. Chinese firms are boosting salaries to compete with foreign multinationals, and a shortage of executive talent in China with international experience is further driving up compensation.

With wages for lower-skill jobs held in check by a labor surplus, the pay gap between executives and the rank and file is widening. That's leaving many average Chinese workers, like their American counterparts, feeling left in the dust.

Take Ping An Insurance Co. Like other Chinese companies that recently issued stock, Ping An reported the compensation of its leaders for the first time this year.

Chief Executive Ma Mingzhe, 51, earned just under $1.7 million after taxes in 2006. One of his lieutenants, Executive Vice General Manager Liang Jiaju, took home about $2.1 million -- making him the highest-paid executive among companies that filed 2006 reports.

That may not seem like much for a company that posted profit of about $1 billion last year. But more than a few Ping An employees said they were surprised that the executives' pay was so high. Other workers were taken aback for another reason. Liang's combined salary and bonus in 2006 jumped 157% from a year earlier, according to a separate annual report filed in Hong Kong. Ping An's stock is listed there, along with Shanghai.

"I feel the structure isn't very reasonable," said one employee in the marketing section who makes about $800 a month, pretax. He and half a dozen other Ping An workers in various departments said their annual raises were less than 5% this year. "Ordinary employees aren't sharing the benefits of the company's fast growth."

A Ping An spokeswoman declined to comment, saying the subject was "so sensitive these days."

Although China has pulled tens of millions of people out of poverty in the last 20 years, the country has developed one of the world's biggest gaps between rich and poor, according to its own research. Communist Party leaders have made tackling this problem a top priority, lest it lead to widespread social unrest. The growing pay gap is colliding with traditional communist ideals of equality and fairness.

"Of course such widening disparity has some conflicts with our government's policy of building a harmonious society," said Ma Fei, general manager of Realize Human Resource Consulting Co. in Beijing.

After compiling annual reports of about 1,400 Chinese publicly traded companies, Ma found that the highest-paid executive, usually a CEO or general manager, enjoyed, on average, a 20% pay hike in 2006. In the finance and insurance industry, the average increase was 80%.

Yet Ma found that those executives made, on average, just $45,000.

Why so low at Chinese companies? Most of the 1,400 are state-controlled. The legacy of a planned economy remains strong in that sector, and a culture of secrecy makes it tough to know the full extent of compensation. Since 2006, however, listed companies have been required to disclose what they pay senior management.

"Even though the CEO pay is described as very little, there's a whole bunch of hidden benefits and allowances which are very often more than the final salary," such as housing, car and driver, expense accounts and club memberships, said Arthur Yeung, a professor at China Europe International Business School in Shanghai. "It's an equity issue. They don't want to create grievances," he said, in people who work for them or those above them in the Communist Party hierarchy.

Sometimes, government-owned companies overstate the pay of certain executives, which Yeung reckons may be aimed at showing outside investors that their CEO is up to snuff with international standards.

CNOOC Ltd., the oil and natural gas company that failed in its bid to acquire Unocal Corp. two years ago, reported that its CEO, Fu Chengyu, 56, was paid $1.2 million last year, an increase of 45% from the previous year.

Most of his pay was in the form of stock options -- a rarity in China. The government is still formulating rules about stock and equity ownership.

Given that CNOOC reported profit of about $4 billion last year, Fu's pay was a pittance compared with what oil company executives make in the U.S. (Ray R. Irani, CEO of Occidental Petroleum Corp., received $55.6 million in 2006. His company earned about $4.4 billion.)

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