Citigroup Inc. is increasing base salaries for many of its employees -- reportedly by as much as 50 percent for some workers -- as it restructures its compensation program amid new restrictions on bonus payments.
Wednesday, June 24, 2009
NEW YORK -- Citigroup Inc. is increasing base salaries for many of its employees -- reportedly by as much as 50 percent for some workers -- as it restructures its compensation program amid new restrictions on bonus payments.
The increased salaries will offset lower bonuses, according to a person familiar with the matter who requested anonymity because the plans have not been made public. The higher salaries are not the equivalent of annual raises, the person added.
Citi faces restrictions on bonuses as part of a new government compensation oversight plan because the bank received bailout funds from the Treasury Department.
By shifting the mix in compensation packages, it will allow Citi to pay most employees as much as they received in 2008 while adhering to bonus caps.
"Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment," Citi said in a statement Wednesday. "Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation."
A New York Times report published Wednesday said some employees salaries will rise by as much as 50 percent because of the change in compensation structure.
The New York-based bank has been among the hardest hit by the credit crisis and ongoing recession. Citi has reported six straight quarterly losses totaling nearly $30 billion. But, it would have posted a profit in the first quarter had it not been for dividend payments on preferred stock. In recent months, the bank has been reducing staff and selling assets in an attempt to streamline operations and return to profitability.
The bank has received $45 billion in loans from the government. A portion of those funds will soon be converted to common stock, giving the government a 34 percent stake in the bank.
Bonuses awarded to employees at financial firms that received government bailouts have come under heavy scrutiny in recent months. Earlier this year, American International Group Inc. came under fire for bonuses it paid to employees at one of its most troubled divisions. AIG was rescued from the brink of collapse by the government last fall.
The Obama administration has blamed compensation plans for encouraging excessive risk-taking that pushed the financial services sector into chaos last year.
The administration recently named Kenneth Feinberg a "special master" to oversee compensation packages awarded to the seven companies that have received the most government support, including Citigroup. Feinberg can reject pay plans he deems excessive and review compensation for the top 100 salaried employees at those companies.
Charlotte, N.C.-based Bank of America Corp., which received $45 billion in government support, is among those facing additional scrutiny about bonuses and executive compensation.
Bank of America was not immediately available to comment on whether it also is planning to alter its compensation program.
Ensuring compensation for employees by increasing salaries could be a move banks facing government restrictions take to avoid losing workers to competitors. Some banks that received government loans during the mushrooming credit crisis last fall have already paid back their debt, and are no longer subject to compensation oversight. That could allow them to offer lucrative deals to entice employees away from banks where restrictions are still in place.
Aside from the boost in salary to offset the lost bonuses, Citi is also planning to award new stock options to employees to help ensure they remain at the bank, according to the Times report.
Shares of Citigroup rose 3 cents to $3.04 in morning trading. Bank of America shares rose 12 cents to $12.35