Bankers tempted by lucrative prospects of Internet finance

Pay cuts may well promote equality but they are also leading to an exodus of top bank talent, reports Jiang Xueqing.

Top executives are being lured away from State-owned banks by Internet companies and privately owned lenders with the promise of higher pay and career advancement.

This trend is likely to continue after the government announced a salary reform last this year.

In a move to promote equality, the salary reform came into effect on Jan 1 to reduce the pay of SOE executives.

According to the draft plan, the annual pay of top executives in the State-owned financial sector will be cut by around 70 percent to a top rate of 600,000 yuan ($96,720), the Beijing-based Caijing Magazine reported last year..

This is likely to lead to an exodus of talent from the banking sector, said Guo Tianyong, director of the Research Center of the Chinese Banking Industry at the Beijing-based Central University of Finance and Economics.

"The competition for talent has grown more intense after Internet companies entered the financial sector," Guo said. "Audacious Internet financial institutions are trying to attract senior bank executives with generous compensation, thus triggering a shock to the human resources management system of traditional banks."

Chim Wai Kin, chief credit risk officer with Bank of China Ltd and the highest-paid official at the country's listed banks, left the lender after his contract ended on March 26. What he has been doing since then is unknown.

With more than 20 years experience working in credit risk management at banks such as Deutsche Bank AG, Chim's annual compensation package was about 8.5 million yuan in 2013.

Bank of China said his decision to leave the State-owned lender was not unusual and was not linked with the salary reform policy, despite widespread media speculation.

Chim's paycheck was exceptional because of the job he did and it outstripped the normal compensation packages in the State-owned financial sector.

Jiang Jianqing, chairman at Industrial and Commercial Bank of China Ltd, the nation's largest lender by assets, only received a pre-tax package worth 2 million yuan in 2013, according to the ICBC annual report.

Tian Guoli, head of Bank of China, earned even less at 1.36 million yuan, the lender's annual report revealed.

Compared with State-owned lenders, joint-stock banks or semi-privatized financial institutions, and privately owned banks offer higher salary packages. Hong Qi, president of China Minsheng Banking Corp Ltd, a mid-sized commercial lender, was paid 4.5 million yuan before tax last year. That was down from 5 million in 2013.

But the boom of Internet finance and the launch of privately owned banks has increased the pay gap in the financial sector. And this latest salary reform could help tempt more talent away from the State-owned banking sector.

"It is hard for bank employees to stay at work without being affected by possible pay cuts, the rise of Internet finance and the fall of bank profit along with the narrowing in net interest margins," one banking industry worker, who asked not be named, said.

Cao Tong, former vice-president of the Export-Import Bank of China, is now serving as president of WeBank, a private online lender that opened for business in January. WeBank was launched by Internet giant Tencent Holdings Ltd and two other companies based in Shenzhen, Guangdong province.

Zhu Tao, former president of Bank of China's Suzhou Branch, left to take over as president of Huarui Bank, the first private lender in Shanghai. Huarui Bank also recruited other veteran bankers, including Ling Tao, former deputy director of the Shanghai head office of the People's Bank of China, or the central bank, and Sun Wenying, former deputy general manager of China Merchants Bank Co Ltd's Credit Card Center.

Last year, the China Banking Regulatory Commission, the industry's regulator, approved the setting-up of five private banks.

"The number of private banks is very small, compared with the supply of talent, so it is not difficult for them to attract influential people with higher compensations and positions," said Wen Bin, principal researcher at China Minsheng Banking Corp.

"But some people are not interested as they don't want to join a startup business. They also feel that the platform is not big enough."

"A market-oriented system will let everyone display their talent fully and allow them to expand their careers. But that only applies if they are not afraid of putting themselves to the test on the open market."

To prevent staff from leaving, China Merchants Bank's announced on April 10 its board of directors had decided to approve a stock ownership plan for employees. This will be done by issuing at most 434.78 million shares to staff, raising up to 6 billion yuan.

About 8,500 employees, including directors, senior executives and mid-level managers, will be allowed to buy shares at a price 10 percent lower than the 20-day average prior to the announcement. They will be required to lock the shares for at least 36 months.

By implementing a stock option, China Merchants Bank aims to further improve its corporate governance structure, establish a medium- and long-term incentive mechanism and stabilize its management team. But it is still unclear whether the plan will achieve its target, experts said.