China International Capital Corp. (CICC) is considering demoting certain senior bankers and reducing their pay, according to individuals familiar with the situation. This unusual decision has the potential to prompt voluntary departures from one of China's largest investment banks.

CICC has internally informed bankers that under a newly implemented performance-rating system, some individuals may lose their managing director titles and be assigned lower ranks, according to sources familiar with the matter who declined to be identified as the discussions were confidential.

Job demotions are exceedingly rare at financial institutions and large companies. Some employees at CICC perceive the bank's performance plan as a strategy to reduce costs without resorting to layoffs, which would incur substantial restructuring expenses.

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 people said. 

CICC, which previously offered banker compensation once par to global firms like Goldman Sachs Group Inc. and UBS Group AG, has been reducing bonuses over the past three years due to a decline in deal activity. As a state-owned Chinese bank, CICC has also attracted attention for its pay reforms within the country's finance sector, particularly after authorities criticised 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 people familiar with the matter. 

Only 5% of individuals will be placed in the top category, while the next 45% will be classified in the second tier. 20% of individuals will be allocated to a third group, another 20% to a fourth group, and the remaining 10% will be assigned to the bottom category, according to the sources.

Those in the fourth group would get a small demotion within their title range, and individuals in the bottom 10% 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% of bankers will get a bump-up in seniority this year.

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

CICC, with a global workforce exceeding 15,000 individuals, boasts over 2,000 investment bankers. Among its ranks, there are approximately 300 managing directors spanning various business sectors, including roughly 100 within investment banking, according to one of the sources.

In the previous month, CICC informed its mainland China-based bankers that their base salaries could be reduced by up to 25%, according to the sources. However, bankers classified in the top two performance categories would receive reimbursements for their pay cuts in the form of bonuses by the end of the year, as indicated by 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 push to further reduce costs comes amidst a significant decline in deals across various sectors, ranging from initial public offerings to mergers and acquisitions, in both China and Hong Kong over recent years.

CICC recently announced a 45% decrease in first-quarter profit to 1.24 billion yuan. This decline occurred as revenue from its brokerage, investment banking, and asset management sectors all fell.

Image source: Reuters