CHINA S MANAGERIAL LABOR MARKET through a multistranded program of experimental reforms. First, reformers sought to enhance the authority of enterprise managers This involved reducing the power of Communist Party officials to intervene in enterprise decision making and giving managers legal responsibility for enterprise decisions. Factory manager responsibil- ity systems"were implemented in the majority of enterprises in our sample- by the mid-1980s and were predominant by 1988. Enhanced cifc aerial authority also implied a reduction in the number of spe- cific instructions given to managers by bureaucratic superiors. Sec ond, enterprises were provided with significant incentive funds. Profit retention schemes allowed enterprises to draw funds for worker bo- nuses,worker welfare facilities, and enterprise investment in accor- dance with improvements in profitability. These schemes clearly gave the enterprise as a whole an interest in increasing productivity. They also implied a substantial increase in the economic resources over which managers had direct control. Thus the authority and control of resources by factory managers increased substantia a third strand of reform-the primary focus of the present pa per-was to develop new mechanisms to reward managers and link managerial careers more effectively to firm performance. The most common means for doing this was long-term managerial contracts which were in force in 92 percent of the state-owned enterprises our sample. Contracts generally had 3-or 4-year terms, and they were signed by the enterprise manager as an individual (70 percent of firms)or by a managerial group(26 percent of firms). The contracts committed the manager to meeting certain performance indicators and established a structure of rewards and penalties. Profitability was always one of the performance indicators and was listed as the most nportant indicator by 72 percent of managers; 28 percent listed important. In many cases, long-term contracts also committed malle output targets, cost reduction, or other specific indicators as m ers to certain minimum levels of reinvestment in the enterprise. 3 In most cases, the hierarchical structure of authority was main- tained intact. Over 80 percent of the managers in our sample were appointed by industrial bureaus in the traditional way. For most man- agers,careers continued to be determined by the evaluations of bu- reaucratic superiors and it is therefore rocess by which the bureaus select and supervise managers. We ar gue below that there were significant changes both in the incentive ppendix, sec. A, for a description of the sample of 769 state-owned Chine ed our data set nal descriptions of long-term managerial contracts, see China Enterprise Research Group(1988)and Naughton(1995)