Latest move is to establish a modern corporate system and push forward reform of income distribution

China's leaders have decided to cut the hefty salaries and restrict the expense accounts and other perks of top executives at large state-owned enterprises. During a meeting in late August, presided over by General Secretary Xi Jinping, the Political Bureau of the Central Committee of the Communist Party of China approved plans to reform the payment system that determines centrally administered SOE executives' salaries and the size of their expense accounts and other privileges.

China has thousands of SOEs, 113 of which are directly administered by the central authority. These SOEs are considered the backbone of the economy, but their inefficiency, monopolies in some sectors, unchecked spending and corruption have become a source of growing public complaints. Statistics show the average annual salary of executives at centrally administered SOEs ranged from 650,000 ($105,690) to 700,000 yuan in 2010 and 2011. These salaries were significantly higher than those of ordinary employees and those of servants.

In addition to their high salaries, many top executives at major SOEs carry a vice-ministerial or ministerial-level administrative ranking that brings them so-called invisible income, such as transport and communication allowances and other material benefits.

Citing a statement issued after the meeting, Xinhua News Agency said that "excessive salaries will be cut to reasonable levels". And the central authorities have started soliciting public opinion on a draft rule to cut SOE salaries to about 30 percent of current levels with annual pay capped at 600,000 yuan.

The salaries of top executives at SOEs seem enormous to more people, because they may equal half the lifetime earnings that many people can expect to make. Therefore, some suggest that SOE executives should be paid at the same level as public servants in government departments. While such a salary standard may conform to public opinion, it is not in line with a market economy.

It is not an easy job to be an SOE executive. People play different roles in society, and society needs people to play different roles. SOE executives have to integrate the conflicting roles of being an official and being a money making businessperson at the same time.

Some say that in their roles as SOE executives, they should produce wealth for the country and people instead of themselves. However, their success in the economic field is always closely related with their own obsession with making money. Moreover, sometimes the boundary between making money for the country and for oneself is ambiguous. It is a pity that some former SOE executives who were very successful in business and made great contributions to their SOEs failed to make money for themselves. Therefore, any salary cuts should be moderate.

On the other hand, there are indeed some SOE executives who are always comparing themselves with their counterparts in private enterprises and foreign companies, even claiming that they are severely underpaid. Such an attitude will of course incur complaints and public wrath. For one thing, the SOE executives have titles as centrally administered officials, which guarantees they have convenient channels to communicate with officials at all levels. Besides, most SOEs flourish as monopolies or because of administrative monopoly, and their earnings are almost all guaranteed, regardless of how the enterprises perform in the market. By comparison, executives of private or foreign enterprises will have their performance evaluated and be paid bonuses according to how well they run their companies.

So how should reasonable salaries and expenses and other privileges of centrally administered SOE executives be determined and how will they be regulated?

First of all, the basic salaries should be equal to those of government officials of the same level.

Second, performance-based pay or bonuses should be introduced. Apart from judging whether the SOEs are making profits or suffering losses, there are two more factors that should be taken into consideration when evaluating an executive's performance: one is whether the people they are serving are satisfied or not, and the other is whether their employees (migrant workers included) are satisfied with their leadership. An indirect approach could be adopted by introducing a baseline and seeing how much improvement is made every year.

Next, thorough research into the existing salaries, expenses and other privileges should be carried out in order to eradicate any payments that are unreasonable. An upper limit should be set and the excess distributed among employees.

All information regarding the salaries, reimbursements and perks must also be made public every year, since the SOE executives are public figures with official identities. Apart from public scrutiny, a specific conference should be organized at the annual sessions of the National People's Congress, the top legislature, and the Chinese People's Political Consultative Conference National Committee, the country's top political advisory body, to guarantee effective and practical supervision over the salaries, expenses and perks of SOE executives.

The author is social policy researcher at the Chinese Academy of Social Sciences. The views do not necessarily reflect those of China Daily.