Executives of state-owned banks and insurers have been ordered to cut their salaries to promote income fairness amid an economic slump that has put pressure on profits and wiped out millions of jobs.

The directive follows rising public grumbling about huge pay packages for top executives at state-owned financial companies.

Total executive pay for 2008 at financial institutions -- which many are still computing - must not surpass 90 percent of the 2007 levels, the Ministry of Finance (MOF) announced on Thursday.

Companies whose profits declined last year should slash another 10 percent, with deeper cuts at those in financial trouble, the circular said.

Pay refers to pre-tax income, including salary, bonuses and social insurance.

"Individual financial enterprises pay top executives too much. The gap between them and average workers and internal staff is clearly expanding," the ministry said.

It said pay cuts were needed to "further equalize distribution of income". Chinese executive pay is modest by Western standards but many times that of ordinary workers.

The announcement gave no details of how many levels of management would be affected or how the authorities will decide which institutions require bigger cuts.

Most of China's major banks, insurers, stock brokerages and other financial institutions are government-owned. But many have listed Hong Kong subsidiaries that handle a portion of their operations, and it was unclear how executives linked to those entities might be affected.

The ministry praised executives who have already cut their pay, especially at institutions that are financially healthy.

The country's economy is forecast to grow by 8 percent this year -- the fastest rate of any major country -- but the collapse in global demand for exports has thrown at least 20 million people out of work.

The ministry also demanded that the pay gap among executives in the financial sector be narrowed, calling for bigger cuts for those who received much higher pay than the average in 2007.

The ministry's directive is aimed at preventing financial firms from competing with each other when deciding total compensation packages for their executives in 2008, said Guo Tianyong, a professor at China Central Finance University.

It is necessary to put a cap on executive salaries to prevent unfair distribution of income and a larger gap between the rich and poor, he added.

An official from the China Banking Regulatory Commission, who did not want to be named, said: "Since the current equity structure is unable to ensure a fair payment system, it is very necessary for the MOF to protect the state's financial assets."

In the past few years, commercial banks have diversified their equity structure by roping in strategic investors, but their corporate governance leaves much to be desired, he said.

Zheng Wei, managing director for Asia executive remuneration business at Mercer, one of the world's largest human resources consulting firms, said it may be necessary to take some temporary measures in the current tough times.

"Yet in the long run, the government should introduce market-oriented compensation mechanisms for these financial institutions," he said, pointing out that the rules may be unfair toward executives with good performance.

(China Daily April 10, 2009)