China’s CICC demotes senior bankers, cuts pay to slash costs

CHINA International Capital Corporation (CICC) is planning to demote some of its senior bankers and cut their pay, sources with knowledge of the matter said, an unusual move that could lead to voluntary departures from one of the country’s largest investment banks.

CICC has communicated to bankers internally that some individuals could lose their managing director titles and be relegated to lower ranks under a new performance-rating system that took effect recently, said the sources, who declined to identified because the discussions were private.

Job demotions are exceedingly rare at financial institutions and large companies. CICC’s performance plan is being viewed by some staffers as a way for the bank to cut costs without making bankers redundant, as the latter would result in hefty restructuring expenses that typically come with layoffs.

It is also very difficult for companies to terminate employees in mainland China. Demotions – or the threat of them – could lead bankers to resign, which would enable the firm to reduce its headcount through attrition, the sources said.

CICC, whose banker pay was once on par with global firms such as Goldman Sachs Group and UBS Group, has been slashing bonuses for the past three years amid a slump in deal-making. The state-owned Chinese bank has also been a lightning rod for pay reforms in the country’s finance industry, after authorities lashed out at bankers’ “hedonistic” lifestyles and referred to them as the “financial elite”.

As part of the new performance-rating plan, CICC bankers would be placed into five categories, according to sources familiar with the matter.

Just 5 per cent of them will be in a top group, the next 45 per cent will fall into the second category, 20 per cent into a third group, 20 per cent into a fourth group and 10 per cent in the bottom group, the sources said.

Those in the fourth group would get a small demotion within their title range, and individuals in the bottom 10 per cent would be dropped down a full rank – such as from managing director to executive director, or from vice-president to associate, the people said. Only the top 5 per cent of bankers will get a bump-up in seniority this year.

A Beijing-based media spokesperson for CICC declined to comment.

CICC, which employs more than 15,000 people worldwide, has more than 2,000 investment bankers. The firm currently has about 300 managing directors across its businesses, including around 100 in investment banking, according to one of the sources.

Last month, CICC notified its bankers in mainland China that their base pay would be cut by as much as 25 per cent, the sources said. Bankers that fall into the top two performance categories would get their pay cuts refunded in the form of bonuses by year end, according to one of the sources.

CICC earlier scaled back travel perks for senior bankers to bring its business practices in line with Chinese President Xi Jinping’s “common prosperity” drive. In addition, the firm has been requiring senior bankers to book the cheapest seats on most trains and has massively cut budgets for hotel accommodation.

The efforts to further drive down costs come as deals from initial public offerings to mergers and acquisitions in China and Hong Kong have plummeted in recent years.

CICC recently reported a 45 per cent drop in first-quarter profit to 1.2 billion yuan (S$224 million), after revenue from its brokerage, investment banking and asset managements all fell. BLOOMBERG