By Bob Blandeburgo
Citigroup Inc. (NYSE: C), one of the largest recipients of federal assistance, intends to raise the base salaries of many of its non-executive employees to offset the leaner bonuses being handed out this year.
Citi, which received $45 billion in troubled asset relief funds (TARP), will raise salaries by as much as 50%, The New York Times reports, citing unnamed sources familiar with the plan. The company joins other government-funded banks such as Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS) and UBS (NYSE: UBS) with the hope of shifting attention away from bonuses, which Citi says are not one-time payouts but a form of deferred salary. The new pay system will enable Citi to adjust bonuses that better reflect employees' performance, company officials said.
Also in the works at Citi are plans to award stock options in hopes of retaining employees. Under the new stock option program, employees will receive one stock option for every share of restricted stock they have, The Times said.
"Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment," Citigroup spokesman Stephen Cohen said. "Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation."
Citi may not need to be terribly competitive in a job market that most economists agree is far from growing. Even once the economy starts showing signs of life, the market could experience a jobless recovery where employers try to make up for lost profits by keeping their payrolls slim. Almost 325,000 jobs have been cut across the worldwide financial industry since the recession began in December 2007.
Still, Citi executives said the changes are necessary for employee retention, as some workers have already left for small, boutique investment banks or large rivals that are not so beholden to the government or have already paid off their TARP debts.
While the U.S. government will soon have a 34% stake in Citi, the Obama administration has little power to prevent Citi and others in the sector from raising non-executive salaries.
President Obama's new "pay czar," Kenneth R. Feinberg, can only regulate the compensation for the top 100 employees at troubled companies. The rest can be paid at the discretion of company executives, who have sought guidance from the Treasury Department on how to alter compensation. After reviewing the new rules, Citi determined that it did not need Feinberg or other government officials' blessing for non-executive compensation.
News and Related Story Links:
- The New York Times:
Citigroup Has a Plan to Fatten Salaries
- Money Morning:
Is the U.S. Economy Headed for a "Jobless Recovery?"
- Money Morning:
What TARP Banks Are Investment Grade?