Ignorance Is Bliss

There has been a lot of talk about the salaries of top managers at the Samruk-Kazyna National Welfare Fund. How justified is it that there is no information on how much they earn? It is a highly debatable question, and I will try to explain why. I once worked at a company dependent on the Fund, so I have a rough idea of pay levels at Samruk-Kazyna and in its system.

Let me say right away that pay across the system is not high compared with large Western companies and private companies in Kazakhstan. But it is still quite high compared with many small and medium-sized enterprises in Kazakhstan.

The main advantage of working for a state-owned company is stability, which allows employees to plan ahead and save. Many people, when choosing between stability and high but riskier earnings, will choose stability.

Now to the ethical side of whether top managers' salaries should be published.

Many requirements for listed companies oblige them to disclose top managers' earnings. I think this is right and sensible: it increases a manager's accountability for his work, and he will face criticism if his pay does not match his level of competence.

The difference between state capitalism and the normal kind is this. In developed countries, the largest companies have millions of shareholders in the form of ordinary citizens, who own them directly or through various funds. Under state capitalism, the largest companies are owned by the state. So in developed countries people can take part in running a company directly, while here they can do so only through the state, indirectly, by voting in elections. Accordingly, in countries with developed economies, shareholders (and one company may have more than a million of them) demand full transparency in reporting and want to know the level of executive pay, since they also vote for one candidate or another for the post of chief executive.

In state-owned enterprises, top managers are appointed by the sole shareholder, and ordinary citizens cannot take part in appointing any given manager. Hence top managers' reluctance to disclose their incomes.

In Western countries, top managers' incomes are substantially higher than ours, but the gap with the incomes of other citizens is substantially smaller. For example, if a bus driver there earns $2,000, the average top manager, with all benefits, earns roughly $30,000–$40,000. That is a 20-fold difference. At the same time, the ordinary working man knows that a manager at a private company can be dismissed by the company's shareholders. In our situation, a Samruk-Kazyna top manager, say, receives $10,000 a month. With bonuses, various incentive payments and benefits, this comes to roughly $20,000 a month, or about KZT 3.6 million. Meanwhile, a minibus driver, let's say, earns KZT 60,000 a month, which is 60 times less. Comparing top managers' incomes with those of other groups of the population can therefore cause social tension. In this context, it is naturally better not to publish information on their salaries.