The Strategist

American and Chinese senior managers are tightening their belts

05/20/2016 - 15:26

The Chinese government announced new steps to improve competitiveness and efficiency of state-owned companies. Authorities advised them to develop cutting-costs programs to save 100 billion yuan ($ 15.6 billion) by the end of next year. The next three years’ target is to reduce "excessive administrative staff" by 20%.

 According to the state news agency "Xinhua", the Chinese government yesterday announced new instruments to improve efficiency of state-owned companies. The government stressed importance of these companies for the country's economy, yet also pointed out that they need to improve their competitiveness in order to "support the work on the economy’s restructuring". It is reported that the Chinese authorities intend to significantly increase efficiency of state-owned companies on the background of the economic slowdown. Above that, the countries are going to accelerate introduction of market reforms there. The Government also welcomes initiatives of the private sector in acquiring the state companies’ shares.

The State Council led by Prime Minister Li Keqiang released a statement in which, inter alia, reported: "The key directions of vertically-controlled public companies do not always have a high efficiency. Use of excessive human resources, particularly in management positions, interferes with the normal operation of these companies. "

In this regard, the government approached the state corporations with a request to reduce "excessive" administrative staff by 20% in the next three years. According to the government’s estimates, only at the end of next year it will reduce the cost of 100 billion yuan ($ 15.6 billion). In addition, the statement says that "the state-owned companies must use market-based approach to the issues of labor recruitment and pay."

This is not the first initiative of the Chinese authorities to reduce costs in the large state-owned companies due to the slowing economic growth. In late February, Minister of Human Resources and Social Security Yin Weimin said that China will lay off approximately 1.8 million employees of the steel and coal industries to cope with overproduction.

Chinese top managers have already experienced a decrease of personal income for the last year. This is especially true for leaders of state-owned companies. A local edition The Paper surveyed 48 senior managers of Chinese state-owned companies and found that in 2015, their salary has been cut by 38% in average.

Reduction in the Chinese economy’s growth rate reduced compensation of some top managers by 70%. Among them, for example, is CEO of Guodian Nanjung Automation company, which sells power equipment.  

Earlier in April, it was reported that average compensation of CEOs at 300 of the largest US public companies amounted to $ 10.8 million last year. This is 3.8% less than the $ 11.2 million received by them in 2014. The data was published by The Wall Street Journal, analyzed statistics research of MyLogIQ company. 

Compensation volume of half of the top managers decreased, or increased by less than 1%. This is the worst figure since 2008 for companies included in the S&P 500. Compensation of top managers of underperforming companies was affected particularly badly. At year-end 2014, shares profitability of Johnson & Johnson amounted to 17%, yet 2015 brought only 1.1%. As a result, compensation for Johnson & Johnson’s General Director Alex Gorsky declined in 2015 by 4.8%. Yield to shareholders of American Express was 3.6% in 2014, but turned negative (-24%) in 2015. At the end of 2015, Head of AmEx Kenneth Chenault’s compensation decreased by 3.5%. Profitability in the oil company Hess Corp. was already negative in 2014 (-9.9%). In 2015, things got even worse, down to -33%. As a result, compensation of Hess Corp.’s General Director John Hess declined in 2015 by 42.7%.  


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