Fallout: The Financial Crisis

Citi’s pay increase plan raises eyebrows

Ashley Milne-Tyte Jun 24, 2009
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Fallout: The Financial Crisis

Citi’s pay increase plan raises eyebrows

Ashley Milne-Tyte Jun 24, 2009
HTML EMBED:
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TEXT OF STORY

Kai Ryssdal: There is some Citigroup news today that you, as taxpayers and thus shareholders, might be interested in. Citi’s already into the U.S. government for $45 billion from the TARP bailout. Washington is about to come into a 34 percent stake in the bank thanks to a fairly convoluted stock transaction.

So it may come as a surprise to hear that Citi plans to raise employees’ salaries. In some cases by as much as 50 percent. Citi says it’s not going to actually end up paying employees more because bonuses will be smaller from now on. But irate observers are pointing out that Citi wouldn’t be able to pay anybody anything at all if it wasn’t for us keeping them in business. From New York, Ashley Milne-Tyte reports.


ASHLEY MILNE-TYTE: Citi says it wants to pay the government back but to do that it needs to hold onto the workers who’ll make that money. Alan Johnson is a compensation consultant. He says paying more in base salary and less in bonuses is the right thing to do.

ALAN JOHNSON: In Citibank’s case in particular they obviously have morale problems, they have issues of whether they can actually be paid at the end of the year.

He says removing uncertainty about compensation is more likely to keep Citi workers at their desks. Peter Cohan writes widely about banks. He says raising base pay and trimming bonuses will please some bankers but anger others.

PETER COHAN: If they’re paying a bigger salary to somebody who’s working in a part of the business that’s losing money, it doesn’t seem to me they should be getting a reward for that. It seems to me they should be suffering along with the performance of the business.

Instead bankers are guaranteed more base pay even if Citi does badly. That’s the way the way Rich Ferlauto sees it. He’s with the American Federation of State, County and Municipal Employees, which holds three percent of Citi’s stock. He says the traders and others who created Citi’s problems are the winners here.

RICH FERLAUTO: Before they were overly rewarded for taking big risks. Now we’re just going to reward them very generously. There needs to be a tie to performance. And not a guarantee of the delivery of very large salaries.

Ferlauto says bankers deserve to be paid well. But he says if Citi concentrated on being a regular retail bank, it wouldn’t need to offer so much of its pay in bonuses.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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