Citigroup to raise base pay by 50%

Citigroup intends to raise workers’ base salaries by as much as 50 per cent this year to offset smaller annual bonuses, according to people with direct knowledge of the plan.

The shift means that most Citigroup employees would make as much money as they did in 2008, although some might earn more and others less. The company also plans to award millions of new stock options to employees in an effort to retain workers and neutralise a precipitous drop in the value of their stock holdings.

Like Citigroup, US financial companies such as Bank of America and Morgan Stanley are raising employees’ base salaries to try to shift attention away from bonuses and to curb excessive risk-taking. So are banks like UBS and other European competitors.
The Citigroup proposals, discussed internally this week, present a crucial test for president Barack Obama’s administration, which has vowed to rein in runaway compensation at companies that have received large, taxpayer-financed bailouts.

Citigroup has gotten two rescues from Washington. Soon, the US government will assume a 34 per cent stake in the company, whose share price has plunged nearly 84 per cent in the last year.

Despite Washington’s new role at Citigroup and public anger over big paydays on Wall Street, administration officials have little power to prevent the company and others in the industry from raising salaries for rank-and-file employees.
Kenneth R Feinberg, the administration’s new “pay czar,” has the authority to set compensation for only the top 100 employees at troubled companies. The rest — which at Citigroup means hundreds of thousands of people — can be paid as executives see fit, provided any increase does not rank them among the 100 most highly paid workers.

Outsize pay on Wall Street, particularly the industry’s bonus culture, is widely seen as having encouraged the risk-taking that led to the financial crisis. But industrywide, total compensation is expected to rise 20 to 30 per cent this year, approximately to the levels of 2005, according to Johnson Associates, a compensation consulting firm. Total industry pay would still be below the record levels of 2007, but only a bit.

“You can say it is outrageous,” said Alan Johnson, the president of the consulting firm. “But maybe it’s a little like the canary in the mine, and you say that things are getting better.”

Indeed, despite the simmering anger over Wall Street pay, some of the 10 big banks that repaid their government aid this month — a big step toward disentangling themselves from the government — are gearing up to pay outsize bonuses. For many, profits are up, despite the troubled economy. On Monday, Goldman Sachs, which returned $10 billion of bailout funds, denied reports that it planned to pay out the highest bonuses in its 140-year history.

Citigroup executives are so eager to keep employees from fleeing that in some cases they are offering them guaranteed pay contracts. Managers began notifying bank employees of the proposed changes this week. They could take effect shortly.

For some Citigroup investment bankers and traders, the changes could mean salary increases of as much as 50 per cent, depending on their position. Legal and risk management employees, as well as those in the credit card and consumer banking units, whose pay is typically skewed toward salary, rather than bonuses, are expected to receive smaller increases.

Stephen Cohen, a Citigroup spokesman, said that any changes would be intended to adjust the balance between salaries, which are fixed, and bonuses, which vary from year to year.
Source: mydigitalfc.com