China’s State-Owned Financial Institutions Brace for Pay Cuts

Financial professionals in China are preparing for a new round of salary reforms aimed at state-owned financial institutions, which are expected to result in flatter pay structures and diminished earning potential. These reforms, insiders warn, could threaten incentive structures and lead to an exodus of talent, especially in highly competitive institutions where compensation is directly linked to performance. Already, some employees are leaving in search of firms without compensation caps[para. 1][para. 2].

This apprehension has intensified following recent Ministry of Finance (MOF) guidelines sent to the headquarters of state-owned financial firms, outlining the framework for a sector-wide compensation overhaul. Institutions have been directed to create detailed pay plans in alignment with this framework[para. 3]. The reforms follow an earlier push by the Ministry of Human Resources and Social Security to curb excessive pay in state-owned enterprises (SOEs). The measures include banning “inverted pay” – where subordinates earn more than superiors – and capping annual pay for chiefs of central government-administered SOEs at about 1 million yuan ($140,000). However, subsidiary heads, particularly those that are more market-oriented, can earn up to three times this figure[para. 4].

There is clear evidence of tightening compensation controls: for example, state-owned securities firms introduced a 3 million yuan annual salary cap last year[para. 5]. The reforms will impact 27 central government-administered financial institutions, but their effect on subsidiaries will be less pronounced[para. 6]. Some major banks, such as Industrial and Commercial Bank of China Ltd. (ICBC), are already implementing sharp pay restrictions, particularly for mid-level managers. In ICBC’s Beijing headquarters, department general managers may see their annual pre-tax salaries capped at 1 million yuan[para. 7][para. 8].

A core objective of these reforms is to eradicate “inverted pay,” which has sometimes caused corruption scandals. Previously, mid-level executives could earn more than senior management, prompting schemes where managers “contributed” part of their salary to their superiors. Regulators now want compensation to reflect hierarchy, with the chairman's pay at the top and salaries decreasing by rank, meaning many mid-level managers are set for substantial pay reductions[para. 9][para. 10].

Subsidiaries are granted some flexibility based on their business profile: those largely dependent on internal group business will follow the parent company’s pay scale, while those exposed to market competition may apply a cap up to three times higher[para. 11]. Definitions of “competitive” and “noncompetitive” vary by institution, with criteria like the proportion of business from related-party transactions playing a key role, giving subsidiaries leeway to advocate for higher ceilings[para. 12].

Pressure to moderate pay in the financial sector has been growing for years, with securities firms most affected. A top Citic Securities banker reported that his salary was reduced three times in two years, and in 2024 his year-end bonus was more than halved, prompting top performers to consider leaving. Project teams now earn bonuses around 100,000 yuan annually – far less than in previous years[para. 13][para. 14][para. 15]. At China International Capital Corp. (CICC), pay has become uncompetitive against foreign banks, which offer three to four times as much, leading to a movement of talent to foreign firms[para. 16].

However, not all professionals are looking to leave. Some argue that reaching even a mid-level role in a “Big Six” bank takes years, leading many to prefer staying rather than risking a career change, suggesting the reforms may not provoke mass departures[para. 17]. The article was contributed to by Zhang Yuzhe and Denise Jia, and edited by Jonathan Breen[para. 18][para. 19].