China warns bankers against excessive incentives in pay curbs

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A China yuan note is seen in this illustration photo May 31, 2017. REUTERS/Thomas White/Illustration

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SHANGHAI, May 16 (Reuters) - China's securities association is urging the country's brokerages to set up a sound remuneration system, warning that excessive, or short-term incentives could trigger compliance risks.

Securities firms' remuneration system should also be closely linked with risk management, while pay disbursements should be smoothed out in arrangements that take into account market fluctuations and industry cycles, the Securities Association of China said in guidelines posted on its website.

The guidelines come amid rising competition for bankers and wealth managers, among others, as Wall Street banks aggressively hire to expand in China, which has fully opened up its securities industry. Goldman Sachs (GS.N) and JPMorgan (JPM.N) are among western banks moving toward full ownership of their China securities businesses.

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Moving against excessive pay also aligns with President Xi Jinping's "common prosperity" drive, as Beijing seeks to reduce wealth gaps while curbing disorderly expansion of capital.

China's securities association said that a sound pay system would "enable securities firms to enjoy stable operation and sustainable development, and better take social responsibility."

According to the guidelines, bankers' pay must not be directly linked to the revenue of the deals they undertake.

Meanwhile, securities firms should not blindly pursue market ranking, scale, and short-term performance.

In addition, brokerages should set up a deferred remuneration payment system for chairman and senior managers, under which executive pay is put off for a later date, to discourage top bankers from recklessly taking risks that would only be exposed years later.

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Reporting by Samuel Shen and Andrew Galbraith; Editing by Jacqueline Wong

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