The Advisors' Blog

The Asset Management Association of China wants to limit pay for senior staff at financial institutions, according to meetings reported by Bloomberg but denied by Chinese authorities. The directive aligns with similar guidelines issued by the China Securities Regulatory Association last month as part of China’s push toward “common prosperity.” The rules would apply to both local & foreign banks – including Credit Suisse, Goldman Sachs, JPMorgan and UBS. Here’s more detail from Bloomberg and the FT about what the rules would do:

– Require 40% of bonus payments to be deferred for three or more years

– 20% of bonuses must be invested in financial products issued by their own companies

– Bonuses can’t be directly linked to revenue from underwriting deals

– Clawbacks for violating regulations or causing excessive risk exposure

The guidelines are ostensibly intended to reduce risk-taking behavior that short-term bonuses may encourage – and reduce excessive pay. Although some investors and responsible pay advocates may agree with the spirit of these restrictions, in practice they reflect the increasingly chilly relationship between the West and in China. They’re yet another example of the complexities that global companies are facing right now – and why their boards are so busy. Banks’ dreams to profit from the world’s second-largest economy have been hampered by Covid shutdowns, restrictions on stock sales of China-based companies, and other regulatory hurdles.

It isn’t clear from the face of the regulations whether they will directly impact executives or pay practices outside of China, but the compensation committees of subject banks will likely need to evaluate the organization-wide impact. If they make big changes in response, that could have an even broader market impact.

– Liz Dunshee