China's Securities Firms Reform Compensation Systems to Strengthen Performance and Clawback Mechanisms

(CNA Taipei, July 2) China's securities industry is promoting reforms to its compensation systems, with over 40 brokerage firms successively announcing or revising their compensation policies this year. The reforms primarily focus on the proportion of performance-based pay, deferred compensation, and clawback mechanisms, aiming to enhance the industry's incentive and restraint system.

According to recent reports from mainland Chinese media including the Financial Times, 12 securities firms, such as CITIC Securities, Guotai Junan Securities, CICC, and Huatai Securities, collectively released new compensation management systems on June 26. China Galaxy Securities, Xinda Securities, and 8 other firms announced on the evening of June 29 that their relevant compensation management systems had been approved by their shareholders' meetings.

As of now, approximately 42 Chinese securities firms have announced or revised their compensation management systems, with over 30 having received shareholder approval.

The revision of compensation systems by Chinese securities firms is in response to regulatory requirements. The "Corporate Governance Code for Listed Companies" revised and issued by the China Securities Regulatory Commission (CSRC) took effect in January, stipulating that listed companies should establish compensation management systems. In April, the Securities Association of China issued revised guidelines to guide securities firms in standardizing their relevant systems.

The main contents of the revisions by various securities firms include the proportion of performance-based pay, deferred payment, cessation of payment, and clawback mechanisms.

Regarding the proportion of performance-based pay, about 37 securities firms have proposed floating ratios for the compensation of senior management or directors. The proportion of performance-based pay to the total of basic salary and performance-based pay is set at no less than 50% by most firms.

Many securities firms have established deferred payment mechanisms for performance-based pay for senior executives, core business personnel, and others. The deferred payment ratio is generally no less than 40% of the performance-based pay, with a deferred period of generally no less than 3 years. The first payment will not be made earlier than the second year after the performance-based pay is attributed.

Furthermore, many securities firms have proposed that if relevant personnel engage in illegal or irregular activities, or are grossly negligent, the company may cease payment, reduce payment, or even claw back already paid performance-based compensation. CITIC Securities, China Securities Co., Ltd., and other firms have also proposed that the scope of clawback applies to responsible personnel who have resigned or retired. (Editor: Zhou Huiying / Feng Zhao Feng) 1150702

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