Incentives matter:

Why it is hard for Chinese companies to find the right independent directors


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By an analysis of 2,504 directors from CSI 300 companies, it is recommended to cultivate a market system for independent directors in China.

Our analysis paints a typical image of CSI 300 boards directors. Many of the people guiding governance of top listed companies in China, especially the independent directors, hold post-graduate degrees and had been working at research institutes or professional service firms. However, compared with their American counterparts, they had less practical management or governance experiences, and were less educated in business administration. Only a small portion of them had experience founding their own business. Fewer young independent directors see the role as a promising career step.

The combination of these factors could result in independent directors being less effective on boards.

However, it is hard for Chinese companies to find independent directors with the skill sets exactly fitting their business needs. For the companies, the search base for independent directors were limited, and they had to heavily rely on acquaintance referrals. On the director side, there are weak incentives for people with rich business experiences to become independent directors. Considering the job’s risky nature, most independent directors in Chinese companies were rather underpaid compared with executive directors on the same boards.


Compensation distribution CSI 300 / S&P 500

Figure 14: Compensation distribution CSI 300

Source: Russell Reynolds analysis of CSI 300 and S&P 500 board directors: 1,280 "all directors" and 618 independent directors from CSI 300 companies; 5,205 "all directors" and 4,422 independent directors from S&P 500 companies


By analyzing compensation data of 1,280 CSI 300 directors (618 independent) and 5,205 S&P 500 directors (4,422 independent), we found that the former was significantly less compensated than the latter.

  • The average total compensation for the “all directors” in CSI 300 companies was $210,695, while the median was significantly lower at only $61,243, The compensation for many directors fell below $50,000.

  • Independent directors were compensated even less. The average and median compensations received by independent directors of CSI 300 companies were $34,248 and $24,458.

  • The highly unaligned mean and median values, and the huge gap between the numbers, suggest that the majority of independent directors were underpaid.

  • In contrast, the average compensation received by “all directors” of S&P 500 companies was $2,245,901, while the median was $314,982. The average and median compensation for independent directors on S&P 500 boards were $313,142 and $305,657 respectively.

  • On S&P 500 boards, the average compensation of “all directors” was an order of magnitude higher than that of independent directors.

  • For independent directors, the median compensation did not fall far behind the average number of “all directors”. These means the compensations of independent directors and most executives followed the same healthy distribution.

To make it more obvious, the compensations of CSI 300 and S&P 500 directors could be divided by GDP per capita of China and USA (China: $19,338.20; USA: $69,287.50; PPP, current international US dollars, 2021). The compensation multipliers could illustrate how large the pay gaps were between “all directors” and independent directors in both markets.

The multipliers of the average compensation of "all directors" of CSI 300 companies and S&P 500 companies are 10.87 and 32.41 respectively, which means that the average compensation of "all directors" is 10.87 times and 32.41 times of GDP per capita of China and the United States. However, taking into accounts the uneven distributions of compensation, the multiplier of the median is even more informative. The multipliers of the median compensation of "all directors" of CSI 300 companies and S&P 500 companies are 3.17 and 4.55 respectively. There is a gap between the two, but no significant difference, indicating that the compensation levels of "all directors" of Chinese and American companies are similar in the two economies.

However, the median compensation multiplier of independent directors of CSI 300 companies dropped sharply to 1.26, which is less than 40% of the "all directors" multiplier value. That compares with a multiplier of 4.41 for the independent directors of S&P 500 companies, not far off the 4.55 for their "all directors."

The rapid drop in compensation multipliers for independent directors of CSI 300 companies forms sharp contrast with the value of the S&P 500 companies, reflecting the disparity in the status of independent directors in China and the US. This also reflects the lack of recognition of the value of independent directors by Chinese companies.


Compensation multipliers (CSI 300, S&P 500)

Table 1 Compensation multipliers


Data source: S&P Global Market Intelligence is the source of data but not the source of the analysis in this article
Rules for Independent Directors of Listed Companies (2022)
Opinions of the State Council on Further Improving the Quality of Listed Companies (2020)
The Corporate Law (2018, the forth amendment)
The 2022 amendment of the Corporate Law
Gao Minghua "China Listed Company Quality Index Report No.1 (2021)" 
National Business Daily: The risk and return of independent directors of listed companies are asymmetric. Can high salary and liability insurance break the situation? (Decade 2021)
Zheng Zhigang: China's independent director system, from supervision to rule of law (Nov 2021)


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