Media Briefings

EXECUTIVE PAY IN CHINA: New evidence of its rapid rise and growing link to firm performance

  • Published Date: February 2014

The pay of chief executive officers (CEOs) in China has been rising rapidly over the last decade. What’s more, it is increasingly linked to corporate performance in much the same way as it is in the West, even though the country remains a communist regime with state control of the largest firms.

These are among the findings of new research by Alex Bryson, John Forth and Minghai Zhou, which analyses accounting data on all the public companies listed on China’s two stock exchanges for the period from 2001 to 2010. Their study, which is published in the February 2014 issue of the Economic Journal, finds that:

· First, top executive compensation is highly sensitive to firm performance and it became more sensitive between 2001 and 2010, thus ensuring that CEOs’ fortunes are tied to shareholder interests. The strength of the pay-performance link is similar to that in Europe, but much less sensitive than in the United States.

· Second, average total cash and bonus compensation for a top executive in 2010 was equivalent to US$129,399. Although this is well below what Western executives earn, compensation has been rising very rapidly, doubling between 2005 and 2010. Big differentials between top executives mimic the ‘tournament’ pay structures in the West, creating strong financial incentives for executives to move up the corporate ladder.

· Third, as in the West, those running the largest firms are paid the most, in accordance with the principles of a market that allocates the most talented people to the job slots where their productivity has the greatest impact. The sensitivity of pay to firm size is of the same magnitude as that found in classic US studies of the 1980s.

· Fourth, China undertook a massive privatisation programme between 2001 and 2010. The percentage of publicly listed firms that were majority state-owned fell by almost half to 45%. As in the UK in the 1980s, executive compensation rose markedly in privatised firms – by around 5% in firms privatised between 2002 and 2010.

· Fifth, as in the West, CEOs are able to ‘skim’ company profits when corporate governance is poor. CEOs get a 10% premium if they start sitting on the compensation committee that determines their earnings. They get a similar premium if they become chairman of the board as well as CEO.

In the 1950s, it was said that ‘what is good for General Motors is good for America’. In today’s global economy, what is good for China’s largest firms is, perhaps, good for developed economies.

In the first decade of the twenty-first century, China’s publicly listed companies were the engine behind its real GDP growth of 250%. Between 2001 and 2010, the output of publicly listed firms grew nearly eightfold, accounting for 43% of total Chinese GDP by 2010. The listed sector’s market capitalisation was equivalent to 81% of total GDP.

Yet until now, little has been known about CEO compensation and whether China’s corporate governance is ‘fit for purpose’.

Co-author Alex Bryson, principal research fellow at the National Institute of Economic and Social Research (NIESR), comments:

‘Despite its very different political complexion, China’s incentive schemes for top executives increasingly mimic those in the West.

‘For better or worse, some elements of executive compensation seem to transcend national economic, political and cultural differences.’


Notes for editors: ‘Same or Different? The CEO Labour Market in China’s Public Listed Companies’ by Alex Bryson, John Forth and Minghai Zhou is published in the February 2014 issue of the Economic Journal.

Alex Bryson and John Forth are at NIESR. Minghai Zhou is at the University of Nottingham Ningbo China.

The study was funded by the Economic and Social Research Council (grant RES-538-25-0029) and the National Natural Science Foundation of China (grant 71161130175).

The study focuses primarily on cash and bonus compensation, using accounting data for all publicly listed companies listed on the Shanghai and Shenzhen stock exchanges between 2001 and 2010. These data, collated by GTA Information Technology Company as the CSMAR database, comprise information disclosed by publicly listed companies in China under rules and guidelines set out by the company regulator.

For further information: contact Alex Bryson on +44-7969-179755 (email:; or Romesh Vaitilingam on +44-7768-661095 (email:; Twitter: @econromesh).