The transformation of compensation systems concerns the convergence of "trends" and "momentum."
The year 2026 marks the beginning of the 15th Five-Year Plan period, a crucial phase for consolidating the foundation and exerting full effort towards the basic realization of socialist modernization in China. Currently, the once-in-a-century global transformation is accelerating, with global economic growth continuing to slow. The International Monetary Fund (IMF) forecasts global economic growth to remain at 3.3% in 2026 (see Chart 1), while the World Bank has further revised down its global GDP growth projection for 2026 to 2.6%, with a slight recovery to 2.7% expected in 2027 (see Chart 2). Frequent geopolitical conflicts, technological decoupling, and supply chain restructuring are intensifying. Domestically, the recovery of demand remains unstable, with overcapacity in some traditional industries coexisting with "production without a market" in emerging sectors, and the transition between old and new growth drivers is entering a deep-water zone.
Against this backdrop, enterprises are generally facing a triple dilemma: "difficulty in growing, difficulty in profiting, and difficulty in retaining talent." Revenue growth is under pressure, profit margins are narrowing, and the supply of core talent, especially versatile young professionals in digitalization, greening, and intelligentization, remains persistently tight. Structural talent shortages are evolving from a "hidden concern" to a "constraint." On one hand, the number of university graduates has reached a new high, but there is a severe mismatch with industrial needs. On the other hand, there is a critical shortage of mid-to-senior-level managers and technical leaders with strategic vision, cross-disciplinary capabilities, and innovative execution skills.
In this context, compensation is no longer merely a "cost item" in human resource management but has become a "navigation instrument" for corporate strategy execution and a "ballast stone" for building organizational capabilities. It directly determines three things: whether a company can attract and retain the core talent needed to support the key tasks of the 15th Five-Year Plan, such as new-type industrialization, green and low-carbon transition, and the building of a Digital China. Whether it can stimulate the organization's endogenous motivation, translating strategic objectives into measurable, incentivizable, and actionable individual behaviors at every level. Whether it can achieve a "leap in human efficiency" through mechanism innovation under the rigid constraint of strictly controlling labor costs, truly realizing the trinity goal of "improving quality, increasing efficiency, and reducing costs."
Therefore, compensation reform during the 15th Five-Year Plan period has escalated into a strategic project for modernizing corporate governance and reshaping core competitiveness. It requires group enterprises to adopt a systems-thinking approach to balance "control and vitality," "fairness and efficiency," and "short-term incentives and long-term binding." This involves boldly innovating tools, meticulously designing mechanisms, and sincerely conducting communication within compliance boundaries. Only in this way can new opportunities be cultivated amidst change and new paths opened in difficult situations, truly using the "talent engine" to drive the stable and long-term high-quality development of the 15th Five-Year Plan.
Primary Focus on Efficiency Enhancement: Using the "One Profit, Five Ratios" as the Guiding Framework to Integrate Human Efficiency Improvement into the 15th Five-Year Plan Strategic Execution Loop
The shift in background involves a paradigm change from "scale expansion" to "quality priority." "Adhering to high-quality development" is one of the principles that must be followed for economic and social development during the 15th Five-Year Plan period. State-owned enterprises continue to strengthen the rigidity of the "One Profit, Five Ratios" assessment, where total profit, return on equity (ROE), asset-liability ratio, intensity of R&D expenditure, overall labor productivity, and operating cash collection ratio constitute the "health check" for high-quality enterprise development. Notably, starting in 2025, the "operating cash collection ratio" replaced the original "operating cash flow ratio," marking another leap in the "quality orientation." The operating cash collection ratio directly reflects whether the "money a company earns can be collected in a timely manner," effectively avoiding the risk trap of "inflated profits and depleted cash." It also more accurately reflects the freely usable cash flow during the assessment period, is closer to the cash component of assessed profits, and is more helpful in understanding the quality of a company's revenue. This embodies more specific and targeted assessment requirements for high-quality development.
State-owned enterprise supervision is gradually shifting from "emphasizing output" to "emphasizing collections" and from "emphasizing scale" to "emphasizing sustainability," truly embedding the essence of high-quality development into practical operations—profits must be real, cash must be usable, and development must be stable.
On this basis, human capital is evolving from a "cost item" to a "core factor of production" and a "value amplifier." When enterprises face practical constraints such as slowing revenue growth, pressure on gross margins, and lengthening accounts receivable cycles, relying solely on capital investment or pricing strategies is no longer sustainable. Only by enhancing the "economic value created per unit of human capital" can breakthroughs in both benefit and efficiency be achieved with limited resources. Especially during the initial period of the 15th Five-Year Plan, characterized by accelerated technological iteration and intensified cross-sector competition, organizational competitiveness increasingly hinges on "the competition of talent organization capabilities." The ability to efficiently translate strategic intent into precise actions by frontline employees and to transform each employee's working hours into measurable, monetizable value increments directly determines whether an enterprise can navigate cycles and secure its future.
Therefore, improving human efficiency is no longer just a task for the HR department. It is a full-value-chain systems engineering project spanning strategic decoding, process reengineering, incentive design, and cultural shaping. It is the most micro-level, tangible, and crucial foothold for state-owned enterprises to implement the requirements of high-quality development.
Problem Diagnosis: Three Major Bottlenecks in Human Efficiency Improvement
1. Strategic Decoding Disconnect Group strategic objectives are not effectively translated into quantifiable, assessable, and incentivizable job behavior standards, leading to a "top-down enthusiasm gap." Employee actions become disconnected from corporate value creation, resulting in "high input, low output."
2. Vague Attribution of Human Inefficiency Attributing low human efficiency simply to "redundant personnel" and attempting to improve it through crude solutions like downsizing, controlling hiring, or encouraging overtime, while ignoring structural issues such as inefficient processes, lagging technology, and high coordination costs, will inevitably exacerbate internal friction and destabilize morale.
3. Incentive Disconnect from Performance The linkage between work and efficiency becomes a mere formality, failing to establish a closed-loop feedback mechanism of "human efficiency improvement - value creation - incentive fulfillment." Simultaneously, overemphasizing linkage to a single profit indicator without binding it to the marginal benefit improvements brought by human efficiency gains leads to a situation where "profit growth relies on short-term cost control or opportunistic investments, rather than overall organizational efficiency enhancement." Ultimately, it becomes difficult to improve efficiency and effectiveness indicators like ROE and overall labor productivity in sync.
Practical Implementation Measures: A Three-Step Implementation Path
1. Diagnosis First Conduct an "operational diagnosis" to clarify whether the current business status can support the effective implementation of the 15th Five-Year Plan, identifying core pain points, business bottlenecks, and decision-making deviations through analysis of business sustainability and organizational maturity.
2. Target Penetration With strategic decoding at the core, decompose operational targets and human efficiency improvement indicators layer by layer. Fully explore the core operational result indicators, business development process indicators, and human efficiency improvement quality indicators for each value unit, such as the proportion of high-margin business/strategic emerging business, customer satisfaction, automation substitution rate, and proportion of main business profit.
3. Dynamic Calibration Establish a closed loop of "strategy - efficiency enhancement - implementation" and effectively integrate it into assessment and compensation execution. Avoid letting performance contracts and agreements become mere formalities and prevent performance assessments from tending towards egalitarianism. Truly achieve differentiation in performance and ensure compensation incentives are fulfilled accordingly.
Balancing as a Supporting Element: Dual-Driven "Fairness" and "Precision" Under Group Control—Addressing the Challenges of Diversified Business Models and Governance Upgrades in the 15th Five-Year Plan
The complexity of group governance has reached unprecedented levels during the 15th Five-Year Plan period. The deepening and enhancement actions of state-owned enterprise reform are entering deep waters. Business model diversification is evident, with differing paces in optimizing traditional industries, cultivating and expanding emerging industries, and proactively planning for future industries. The corresponding logic for enterprise management and compensation incentives varies greatly. The deepening of diversified, cross-sector group industries, while focusing on core responsibilities and main businesses, sees state-owned enterprises actively responding to central and local industrial layout plans, implementing strategic emerging industry layout tasks. The coexistence of traditional main businesses and strategic emerging industries complicates the management and incentivization of diversified operations.
Governance hierarchies are deepening. The three-tier structure of group - secondary platform - project company is taking shape. Reforms to reduce redundant management layers and shorten actual decision-making chains lead to expanded control spans at each level, increasing the risk of control attenuation due to weakened organizational control intensity and dispersed management attention.
Problem Diagnosis: Typical Manifestations of Compensation Incentive Imbalance
1. Concern Over Inequity, Not Scarcity With insufficient increments to the total wage bill, some enterprises adopt "egalitarian" distribution to "maintain stability," causing compensation increments to become disconnected from actual value contribution. High-performance teams receive only slightly above the average, while low-efficiency units still enjoy a relatively high base due to historical burdens. This not only weakens incentive effectiveness but also contradicts the "performance is king" orientation of high-quality development, turning compensation into a "stability maintenance tool" rather than a "value lever."
2. Disconnect Between Assessment and Compensation Performance assessment becomes a formalistic process of scoring by superiors, lacking quantified work output, differentiation, or a true reflection of employee capability and performance. The disconnect between assessment and compensation results in egalitarian, baseless compensation fulfillment that is not linked to actual performance assessment results. This severe disconnect undermines the authority of assessments, fostering a negative perception among employees that "it doesn't matter if you do well or poorly."
3. Lack of Perceived Fairness Employee skepticism about compensation fairness stems from information asymmetry, such as unclear standards for performance fulfillment and unclear logic for allocating incentive resources. This is particularly evident across different business segments within a group, where balancing the value contributions of various businesses/teams is difficult, leading to an imbalance where "those who work don't get the money, and those who get the money don't work." The lack of perceived fairness is not just about sentiment; it directly reduces organizational willingness to cooperate and the resilience of strategy execution. When employees do not believe in "more pay for more work," the micro-foundation for strategy implementation is lost.
Practical Implementation Measures: A Four-Dimensional Collaborative Implementation Strategy
1. Establish Rigid Group Baselines Fortify the "four unifications" baseline: unified compensation control requirements, unified work-efficiency linkage model, unified compensation strategy principles, and unified job transfer mechanisms. This prevents "chaos upon delegation" while leaving flexible space for subsidiary enterprises.
2. Embed Human Efficiency Improvement as a Process Incorporate process-based human efficiency indicators, breaking down human efficiency improvement into quarterly milestones. Support this with a "process incentive package," transforming human efficiency improvement from "settling accounts at year-end" to a "traceable process with guidable behaviors." This effectively tackles the chronic issue of "emphasizing results over process," ensuring strategy implementation does not remain abstract.
3. Balance Internal Fairness The core issue of internal fairness imbalance lies in "inconsistent standards and poor mobility," not the need for "egalitarianism." The solution lies in building a dual-wheel mechanism of "unified benchmark + dynamic channels." First, establish a group-wide job value evaluation database to achieve a unified benchmark for job grading systems, serving as the basis for talent performance and compensation and supporting value assessment for talent mobility. Simultaneously, establish a "strategic talent pool" to support lateral transfers across enterprises at the same level, ensuring "salary changes with position, value is transferable."
4. Targeted Precision Incentives To truly overcome "egalitarianism," it is necessary to abandon a "one-size-fits-all" approach and promote compensation tilt towards key groups, effectively implementing "more pay for more work, better pay for better performance." This requires implementing "three-dimensional profiling" for customized incentives, setting differentiated incentive weights according to enterprise type (e.g., fully competitive, public welfare), business field (e.g., traditional industry, strategic emerging industry), and business development stage (investment/growth/maturity).
Diversification as the Tool: Moving Beyond the "Just Pay Money" Mindset to Build a New Ecosystem of Total Compensation Perception in the Context of the 15th Five-Year Plan
The competition for talent has entered a new stage focused on "value identification." In the inaugural year of the 15th Five-Year Plan, the new generation of employees/Generation Z has become the main workforce, with significantly changed demands. Material needs have rationalized: they accept "stable and slightly increasing base compensation" but reject "salary-only considerations," paying more attention to growth potential and sense of meaning. Value demands have diversified: they regard "organizational identification," "social contribution," and "work-life balance" as equally important as compensation. Incentive expectations have become immediate: they dislike the "year-end egalitarian pot" and crave "doing well, being seen, and getting rewarded immediately."
Simultaneously, at the national level, there is strong advocacy for "promoting the entrepreneurial spirit" and "fostering a social ethos that respects labor, knowledge, talent, and creation," providing policy endorsement for spiritual incentives and a culture of recognition.
In this context, if state-owned enterprises continue to rely on traditional incentive models, not only will costs become unsustainable, but they will also miss the strategic window to establish deep connections with the new generation of talent.
Problem Diagnosis: The "Perception Attenuation" Dilemma of Traditional Incentives
1. Limited Rigid Growth in Base Compensation Amidst the trend of slower enterprise growth, the increase in the total wage bill has declined compared to the past. Some loss-making enterprises face a "shrinking" total wage bill, yet the required personnel growth and recruitment of high-end talent are simultaneously constrained. Enterprise compensation resources struggle to match market demands and development needs.
2. Simplification of Incentive Tools Over 90% of incentives are concentrated in performance bonuses. Monthly and quarterly performance assessments generally become formalities, relying on subjective scoring. Annual performance assessments, apart from some quantifiable indicators, lack process-oriented, contextual, and emotional design.
3. Non-Monetary Value Remains Unactivated Enterprises possess substantial implicit resources (e.g., industry influence, training resources) but have not systematically converted them into employee experiences. Material and spiritual incentive innovation tools remain unactivated, lacking effective complementarity with monetary incentives.
Practical Implementation Measures: Innovation Toolkit
Short-term incentives (monthly/quarterly) maintain vitality, mid-term incentives (annual) stabilize expectations, and long-term incentives (3+ years) anchor strategy. Emphasize four dimensions equally: cash (special bonuses/deferrals), long-term (virtual equity/co-investment), development (dual-channel promotion/rotation fund), and recognition (instant recognition).
1. Productize Developmental Incentives Launch a "Growth Account": A "capability enhancement fund" can be established for employees' external courses, certification exams, industry summits, best-selling books, etc. Implement a "Strategic Rotation Plan": Establish a "strategic talent pool" to promote cross-sector rotations for key core talent and strategic talent, with the group covering travel and training costs.
2. Innovate Long-Term Binding Mechanisms For traditional enterprises: Implement a "Profit Sharing Plan," injecting annual excess profits or team budget savings into an employee sharing pool. Extract a proportion to form a bonus pool, then distribute based on individual contribution. For pilot enterprises: Pilot a combination of "job-based dividends + virtual equity" or project co-investment plans to promote the innovative implementation of medium-to-long-term incentive tools, linking the interests of core talent to the operational performance of the enterprise/project.
3. "Contextual Customization" of Benefits Plans For young groups: Provide a "Housing Support Package" (rental subsidies + home purchase policy consultation + city integration activities). For backbone groups: Launch a "Health Guardian Plan" (comprehensive health check-ups + supplementary medical insurance + psychological counseling). For female employees: Establish a "Flexible Work + Parenting Support" program (remote work days, childcare subsidies, Mother's Day family benefits).
4. Visualize Spiritual Incentives Instant response and fulfillment: Integrate a "Shining Moment" module into enterprise WeChat/DingTalk. Employees upload instances of innovation, collaboration, customer praise, etc. Outstanding content is instantly converted into personal points, with rankings on a company leaderboard enhancing personal honor. Establish an "Organizational Recognition Points System": Metrics like number of recognitions received, volume of knowledge sharing, number of new employees mentored, etc., are factored into annual performance evaluation weights. Set up a "Starlight Honor Roll": Quarterly recognition for teams/individuals who have performed outstandingly in strategic tasks, with awards presented personally by senior executives and a "Strategic Contribution Medal" conferred.
Note: 1. Operating Cash Collection Ratio = Actual Cash Received / Operating Revenue × 100%. "Actual Cash Received" refers to the actual cash amount a company receives during the process of selling goods or providing services. 2. Operating Cash Flow Ratio = Net Cash Flow from Operating Activities / Operating Revenue × 100%.
This article is prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, legal, or other professional advice. Please consult your advisors for specific advice.