In China, disparity takes a great leap

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.)

However, analysts said it was unlikely that Fu, despite his international reputation and CNOOC’s strong performance, pocketed even that much because that sum could engender hard feelings from party officials who appointed him to the post. CNOOC, whose parent corporation is controlled by the government, is listed on the Hong Kong and New York stock exchanges.

Executives of state-owned enterprises also have been known to return a portion of their income to their companies. Asked about the difference between Fu’s stated and actual compensation, CNOOC representatives in Beijing declined to comment.

At Bank of China, the pretax pay of Chairman Xiao Gang, 48, totaled about $190,000 last year. The state-run bank posted a profit of $5.2 billion in 2006 and raised $9.7 billion in one of the world’s largest public share offerings in a decade. His compensation rose 18% from 2005.

But Xiao didn’t top the earnings chart at his company. That spot went to an American far down the organizational ladder, Lonnie Dounn, who pulled in about $1 million as chief credit officer.

Dounn resigned in September, but his ability to command premium pay underscores the pressures Chinese companies face to compete globally, for talent as well as business.

That’s especially true at high-tech companies, most of which are private and less bound by Chinese political traditions.

UFIDA Co., a Beijing-based software maker, gave its highest-paid executive, Chairman Wang Wenjing, about $155,000 last year, not much less than what his counterpart at Bank of China made, even though the bank’s profit was about 250 times that of UFIDA’s $21 million.

“He’s in that position; he faces the pressure; he bears the risk,” said Ji Xueqing, general manager of UFIDA’s Shanghai branch, defending Wang’s pay.

As Ji sees it, two prevailing trends in China are stretching the pay gap between top earners and everybody else. For the office and administrative jobs, he said, there is such a labor surplus that 300 people will apply for one opening at his company. That holds down wages. But for higher-end jobs, giant foreign rivals such as Oracle Corp. can easily outpay domestic companies. So UFIDA has to give their salaries a big boost, he says.

The wage disparity is already wide in a variety of industries.

Wang Shi, chairman of China Vanke Co., the nation’s largest publicly listed real estate developer, took home about $525,000 last year. That was 67 times the average salary of $7,800 among Vanke’s 13,402 employees last year, calculations based on figures in its annual report show.

But compare Wang’s compensation with the average pay of a migrant laborer at Vanke’s construction projects, such as the Rancho Santa Fe villas in Shanghai, and the gap widens to about 400 to 1. Vanke executives declined to comment.

The central government, hoping to narrow the nation’s income disparity, has pushed companies to boost wages of top managers and ordinary workers alike. Beijing has less direct influence with private firms, but officials have taken steps to ensure that high earners pay taxes. The top personal income tax rate is 45%.

In the long run, though, the government may choose to take a more laissez-faire approach to executive compensation.

“After all, listed companies should be responsible to investors and shareholders, and they should get the best management,” said Wu Chunbo, a professor of public administration at People’s University in Beijing.

That is the dilemma for Beijing. If officials press hard for state-controlled enterprises to limit management pay, can those companies hire the best talent and compete with multinationals?

More Chinese companies are venturing overseas, which will turn up the heat on salaries at home. And international competition is intensifying in China, prompting domestic firms to think differently.

“Traditionally in a lot of these companies, the [wage] gap has been fairly small compared with the U.S ... because it was all about equality in the old system,” said Eric Fiedler, head of Hewitt Associates’ Asia-Pacific consulting practice in Shanghai. “Now, they’re becoming global. They’re expanding and the focus is on performance.

“China,” he added, “is still in its early days.”

don.lee@latimes.com

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Cao Jun in The Times’ Shanghai Bureau contributed to this report.