Not long ago, China Merchants Bank issued two announcements, disclosing the recourse and clawback of performance pay in 2022, involving an amount of more than 50 million yuan. This means that China Merchants Bank has conducted a "reverse salary bargain" for some employees, requiring them to return the performance bonuses previously issued. This practice has aroused widespread concern and discussion in the society, with some people believing that this is unfair treatment of employees, and some people believing that it is a necessary measure for risk management in the banking industry. So why did China Merchants Bank take such an approach?What is the underlying reason and logic behind this?
What is the performance-based pay recourse clawback system of China Merchants Bank?
To put it simply, the performance-based pay recourse clawback system means that the bank deferred the payment or recovered the deduction of the performance-based pay paid by the employee according to the employee's work performance and risk-taking. The purpose of this system is to motivate employees to improve work efficiency and quality, and to prevent employees from violating rules and disciplines or causing significant losses.
China Merchants Bank's performance-based remuneration recourse clawback system mainly includes the following aspects: China Merchants Bank implements deferred payment of performance-based remuneration for some employees, that is, employees can only receive all or part of the performance-based remuneration after they have reached a certain number of years of service or retirement. The purpose of this is to encourage employees to stay in the bank for a long time and to maintain the stability and continuity of the bank.
It also implements recourse and clawback for the performance pay of some employees, that is, when the employee has the following circumstances, the employee is required to return the performance pay that has been paid, or deduct the performance pay that has not been paid. These circumstances include employees who are given warnings or above sanctions for violating laws and regulations, bank rules and regulations, or professional ethics
Employees violate laws and regulations, bank rules and regulations, or professional ethics, causing major economic losses or adverse social impacts to the bank;Employees are investigated for criminal or administrative liability by judicial authorities or regulatory agencies for violating laws and regulations, bank rules and regulations, or professional ethics;Employees voluntarily resign or are dismissed due to personal reasons;
Other banks believe that recourse is necessary to recover performance-based pay. Scope and proportion of recourse clawback for performance-based compensation: China Merchants Bank's recourse clawback for performance-based compensation includes not only cash bonuses, but also incentives in the form of options and restrictions. The proportion of recourse clawback can be up to 100% according to the degree of violation of rules and discipline by the employee and the impact of the losses caused, which is determined by the board of directors or the board of supervisors of the bank.
What is the reasonableness and necessity of China Merchants Bank's performance-based pay recourse clawback system?
The banking industry is a high-risk, high-return, and high-regulation industry, and the performance and risk-taking of employees are directly related to important factors such as asset quality, reputation and image, and market competitiveness of banks. If employees only focus on short-term interests and ignore long-term risks, it may lead to serious credit crises, capital chain breaks, legal proceedings and other problems of the bank, and even threaten the survival and development of the bank. Therefore, banks need to use the performance-based pay recourse clawback system to restrain employees' behavior, promote employees to align with the interests of the bank, and prevent employees from moral hazard and adverse selection.
The performance-based pay recourse clawback system is not an original creation of China Merchants Bank, but draws on some advanced practices in the world. In the global financial crisis in 2008, some internationally renowned financial institutions, such as Lehman Brothers in the United States and Credit Suisse in Switzerland, caused huge losses and even bankruptcy due to excessive speculation and illegal operations of employees. This has led to international questioning and criticism of the performance-based pay system of financial institutions, which it believes leads to employee greed and risk-taking, and undermines the stability and fairness of financial markets.
To avoid a recurrence of similar crises, organizations such as the International Financial Stability Board (FSB) have developed a series of guidelines and recommendations that require financial institutions to effectively monitor and manage performance-based pay for their employees, including deferred payments and recourse clawbacks. China Merchants Bank's performance-based pay recourse clawback system refers to these international practices to comply with the rules and standards of the international financial market.
The performance-based pay recourse clawback system is also an important regulatory requirement for the banking industry by domestic regulatory authorities. In 2020, the China Banking and Insurance Regulatory Commission (CBIRC) issued the Measures for the Administration of Performance-Based Remuneration for Commercial Banks, which clearly stipulates that commercial banks shall establish and improve a performance-based remuneration management system, including deferred payment of performance-based remuneration and recourse clawback.
The promulgation of this measure is to promote commercial banks to establish a performance-based remuneration management system that is in line with their own characteristics and risk status, improve the governance level and risk prevention ability of commercial banks, and ensure the sound operation and sustainable development of commercial banks. According to the announcement of the regulatory authorities in March 2023, as of that time, more than 95% of banking and insurance institutions had formulated and implemented a system of deferred payment of performance-based remuneration and recourse clawback.
Especially in some high-risk institutions, the relevant system has played an important role in holding non-compliant executives accountable and recovering asset losses. China Merchants Bank's performance-based pay recourse clawback system follows the requirements of domestic regulatory authorities to improve its performance-based pay management and risk management level.
For the development of the banking industry, the performance-based pay recourse clawback system is conducive to improving the overall competitiveness and stability of the banking industry. Through this system, banks can effectively motivate employees to improve work efficiency and quality, prevent employees from violating rules and disciplines or causing major losses, so as to improve the bank's asset quality, reputation image, market competitiveness and other important factors.
At the same time, banks can also effectively restrain employees' risk-taking, prevent employees from excessive speculation or illegal operations, so as to reduce the occurrence of credit crisis, capital chain breakage, legal proceedings and other problems of the bank, and ensure the survival and development of the bank. The performance-based pay clawback system is also conducive to the integration of banks with the international financial market, in line with the guiding principles and recommendations of organizations such as the International Financial Stability Board, and enhances the internationalization level and influence of banks.
For the rights and interests of employees, the performance-based pay recourse clawback system has both advantages and disadvantages. On the one hand, this system can promote the professional development and personal growth of employees. Through this system, employees can pay more attention to their work performance and risk-taking, improve their professional ability and professionalism, and thus obtain more job opportunities and career promotion. At the same time, employees can also enjoy more performance-based compensation, such as **options, restrictive**, etc., to increase their income and wealth.
On the other hand, such a system may also cause certain damage to the rights and interests of employees. For example, employees may lose part of their cash flow and spending power due to the deferred payment of performance-based pay. Employees may also suffer certain economic losses and psychological pressure due to the recourse clawback of performance-based pay. Employees may also reduce their motivation and innovation due to the recourse and clawback of performance-based pay, or become dissatisfied and resistant to the bank.
Performance-based pay clawback systems bring pros and cons to both banks and employees. In the highly competitive environment of the banking industry, this system is a necessary measure for risk management and at the same time promotes the professional growth of employees. However, there is a need to balance the impact on employees in implementation to ensure fairness and transparency. Importantly, this system needs to be continuously improved to ensure the sound development of the bank and safeguard the legitimate rights and interests of employees. A number of banks have reversed wages from their employees