China plans to link banker pay to risks

[September 25, 2009]  BEIJING (AP) -- China plans to link the pay of bankers to risks taken by their institutions but has no plans for salary caps, a government spokeswoman said Friday.

The announcement came as leaders of the Group of 20 major economies meeting in Pittsburgh neared agreement on compensation limits for bankers whose risky behavior contributed to the global financial meltdown.

Beijing is working on a plan to "improve the wage incentive mechanism for the country's banking industry," said a China Banking Regulatory Commission spokeswoman who would give only her surname, Zhang. She said it would "link pay to operating risks."

However, Zhang said, "there is no question of pay limits for commercial banking."

Critics of Western banking practices say pay for traders and executives should be linked to whether risky ventures they undertake succeed or fail in order to encourage them to act more prudently.

China's state-owned banking industry avoided the credit crisis that battered Western institutions.

The communist government is liberalizing banking and other financial industries in hopes of making them more efficient and productive. But it wants to avoid encouraging excessive risk-taking and other pitfalls that have hurt Western economies.

The government ordered top finance executives in April to cut their pay to promote economic fairness. Chinese executive pay is modest by Western standards but many times that of the average worker, which has fueled public anger.

[Associated Press]

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