(China Daily)
Updated: 2007-09-03 09:49

The time is not right for State-owned banks to implement executive stock options, says a signed article in China Youth Daily. The following is an excerpt:

The People's Bank of China, the central bank, announced last Monday it would further the reform of State-owned commercial banks by offering executives stock options.

Executive stock options is an effective incentive, it binds the managerial with the future of the business. Because of their personal interest, people improve their management and efficiency to achieve sustained development of the business.

However, the time is not right to introduce this incentive system to the State-owned commercial banks.

Stock options should only be allowed for companies where there are clear-cut lines defining power, responsibility and rewards. Without such guidelines, the incentive system will not work as they are intended.

Our State-owned banks are far from being qualified. The managers in the State-owned banks are usually appointed by the administrative and they are members of the administrative hierarchy. Moreover, they are often moved to other State-owned banks before their terms are over. This makes the executive stock option plan unfeasible.

As monopoly players in China's financial sector, the State-owned banks enjoy interest on loans and that paid on deposits higher than most banks in the world. So the banks achieve remarkable profits without worrying about their management or service quality. In other words, the banks' profitability is unlikely to change along with its management.