12 securities firms announced their compensation system on the same day, with performance-based pay accounting for up to 60% of total compensation.

Securities firms' compensation system reform is entering a concentrated landing period. On June 26th, 12 securities firms including CITIC SEC, Guotai Haitong, China Securities Co., Ltd., CICC, Huatai, Guosen, CMSC, Changjiang, Tianfeng, China Great Wall, Nanjing, and Sealand announced their compensation management systems on the same day. With the addition of securities firms that have recently released or revised related systems, the total number of firms is now at least 34. Different from the previous market focus on salary adjustments, this round of intensive implementation of systems focuses more on mechanism restructuring. Based on the latest systems announced by securities firms, the reform core revolves around four major dimensions: the proportion of performance-based pay, deferred payment schedule, clawback boundaries, and performance evaluation's functional orientation. This marks the transformation of the securities industry's incentive and restraint mechanism from "scale-driven" to "risk and function matching". 28 securities firms set a baseline of 50% or 60%. The proportion of performance-based pay is a key indicator for measuring incentive flexibility. Based on the analysis, at least 28 securities firms have clearly stated in their systems that the proportion of performance-based pay for directors and senior management should not be less than 50% or 60% of the total basic pay and performance-based pay. Among them, 22 securities firms, including CITIC SEC, Guotai Haitong, CICC, Huatai, and Guosen, have set a baseline of "not less than 50%". It is worth noting that CICC has reserved a stricter clause in the system, stating that "if the higher authorities have regulations with higher standards than this system, they will be followed," reflecting top-tier institutions' attitude of benchmarking higher regulatory requirements. Another 7 securities firms have opted for a higher proportion of variable incentives. Companies such as CMSC, Zheshang, Southwest, Western, Caida, and Sealand require that the proportion of performance-based annual pay for directors or senior executives should not be less than 60%. This tiered design indicates that different securities firms are exploring differentiated compensation flexibility spaces based on their own governance structure and risk preferences, while meeting regulatory bottom lines. In addition to specifying proportion bottom lines, some securities firms also emphasize structural rationality from a risk prevention perspective. First Capital has proposed in the system that the proportion of basic salary and performance-based salary should be kept at an appropriate ratio to avoid business behavior resulting from unreasonable components, providing another risk control perspective for compensation flexibility. Deferred payments strictly adhere to the "T+2" red line With the China Securities Regulatory Commission's new regulation on securities firms' compensation issued on April 17, the pace of deferred payments has been further quantified. Based on the latest disclosures, a "3-year term, T+2 first pay, and equal distribution" has become a standard practice in the industry. Changjiang's system fully aligns with the association's new regulations, clearly stating that the deferred payment speed should not be faster than the equal distribution ratio, the first payment year should not be earlier than the second year after the performance-based pay attribution year (T+2), and it should apply to key positions and personnel directly or significantly impacting risk. Guolian Minsheng and China Great Wall have also made similar arrangements, specifying that the proportion of deferred pay for senior management's performance-based pay should not be less than 40%, the term should not be less than 3 years, and strict adherence to equal distribution principles should be followed. From the regulatory intent and market feedback perspectives, the rigid implementation of this mechanism aims to align the payment of performance-based pay with the risk exposure cycle from a time dimension, preventing overdrawn current performance from risking future risks. Four scenarios define the boundary of accountability In this round of revisions, the clawback mechanism for compensation not only covers current employees but also extends to former and retired personnel. CITIC SEC explicitly includes departed and retired accountable personnel in the clawback scope. Nanjing has further detailed four specific scenarios for clawback suspension of compensation: being identified by regulators as inappropriate candidates, being subject to market access bans or administrative penalties; being at fault for financial fraud, fund misappropriation, or illegal acts; causing severe negligence with significant negative impacts; and being involved in other serious violations as determined by laws, regulations, or the board of directors. Western also emphasizes that for directors and senior management who cause losses to the company or are responsible for illegal activities, the company will reduce or stop the payment of unpaid performance-based pay based on the severity of the situation, and may fully or partially recover the already paid compensation. Compensation management upgraded to corporate governance With the implementation of the revised "Listed Company Corporate Governance Code" in January and the implementation of the China Securities Regulatory Commission's new regulations on securities firms' compensation, securities firms have further elevated their compensation management systems to the level of corporate governance. CITIC SEC has proposed six key principles of compensation management, covering the integration of compensation with the company's overall performance, alignment with risk and responsibility, unity of incentives and constraints, combination of short-term and long-term incentives, scientific, standardized, and reasonable distribution, and synchronous reform of the system with related supporting reforms. ChinaLin lists "balancing short and long term interests," "unification of management and social responsibility," "risk control compliance as a bottom line," and "parity between rights and responsibilities" as four major management principles in their system. They particularly emphasize the veto of major compliance and risk control events, and require personnel to enter or leave, and for compensation to increase or decrease, reflecting a governance approach that emphasizes both incentives and constraints. More significantly, performance evaluations are moving away from a sole focus on financial indicators towards highlighting "functional orientation." According to the China Securities Regulatory Commission's new regulations on securities firms' compensation, economic benefit indicators should fully reflect the functional assessment content of each business line. Different business lines have different emphases in their functional assessments. For example, the securities brokerage line should reflect product compatibility and the effectiveness of risk disclosure, the securities trading line should reflect the prudence of investment behavior and counter-cyclical layout, the securities asset management line should reflect long-term investment returns for investors, the derivatives line should reflect the proportion of derivatives trading with entities, commercial banks and wealth management subsidiaries, and long-term fund management institutions, the investment banking line should reflect the service to national strategy, and the research institute line should reflect the service to the national modern industrial system, interpretation of national macro-industrial policies, and the role of the capital market reform measures. This also signifies that the directive of securities firms' compensation is shifting from "how much money can be earned" to "what functions can be fulfilled," further aligning the industry's incentive system with the goals of capital market reform. This article was originally published by "Caijing", GMTEight Editor: Zhang Jinliang.