Citigroup Inc. is worried about losing employees, and trying to figure out how to retain them.
Citigroup CEO Vikram Pandit has talked with Treasury Secretary Timothy Geithner about the possibility of paying special bonuses to keep demoralized workers from getting poached by competitors, a person familiar with the matter said. The person, who spoke on condition of anonymity, was not authorized to disclose details about the private talks.
In particular, the New York-based bank is hoping to free its highly profitable energy-trading unit, Phibro, from federal compensation limits, the Wall Street Journal reported late Tuesday. The Treasury has not made a decision on the request, the paper said, and the amount of bonuses requested wasn’t disclosed.
A Treasury Department spokesman would not comment on the matter, and Citigroup said in a statement that it has not presented the Treasury Department “with a specific plan for retaining our people. We have also not discussed any specific plan or program designed to give people additional cash bonus payouts.”
Citigroup has received $45 billion in federal bailout funds over the past several months, and the government has agreed to insure a pool of more than $300 billion in Citigroup assets. Soon, the government will own a 36 percent stake in the bank. Companies that have accepted federal bailout funds are under tighter limits on how much they pay top executives.
The restrictions are intended to prevent the type of taxpayer outrage that ensued after the bailed-out American International Group paid $165 million in retention bonuses to employees despite having received more than $180 billion in federal funds.
Banks, though, are chafing at the restrictions. Some smaller banks have quickly repaid bailout funds to end the heightened oversight. Several of the biggest bailout recipients — including JPMorgan Chase & Co., Wells Fargo & Co., Morgan Stanley and Goldman Sachs Group Inc. — have said they want to repay the government as soon as possible.
“I do think compensation is a real issue, and I don’t think it’s going to be business as usual,” Morgan Stanley CEO John Mack told shareholders at the bank’s annual meeting Wednesday. He said someone at a hedge fund recently told him he could lure any Morgan Stanley employee away, and that he couldn’t argue with that assertion.
Executive compensation consultant Steven Hall said many employees are leaving big banks, especially to start their own firms or to join private firms without compensation restrictions. Normally, paying retention bonuses to prevent such an exodus would make good business sense.
“That’s part of the problem with the way the rules are written right now,” Hall said, referring to the Troubled Assets Relief Program, as the government’s bank rescue program is known. “There’s not a lot of flexibility in terms of how to compensate these people if they perform well.”
The Treasury Department is grappling with the question of whether bailed-out banks are justified in paying multi-million-dollar bonuses to the employees they want to keep.
James Post, professor at the Boston University School of Management, said Citigroup is now operating in a “political fishbowl.”
“They have to demonstrate some real need,” Post said. And the bonuses must appear “politically reasonable. The government cannot write a blank check.”
But, Post added, if the Treasury Department denies Citigroup’s request, it might soon find itself facing another one — permission to use bonuses to attract new employees to replace the ones that leave.
“It really illustrates the slippery slope of the government getting into the hands-on management of these enterprises,” Post said.
Citigroup’s bonus plans could include a scenario in which payouts would consist mainly of stock which would vest over at least three years, and the awards would likely be worth at least half of an employee’s cumulative pay over the past three years, the Wall Street Journal reported.
Last year, Pandit got a pay package worth $38.2 million, but the bulk of the compensation was stock and option awards granted in January 2008, when Citigroup’s shares were worth about $25. They are now worth around $3.
The bank also set aside big cash retention bonuses for other executives in 2008: $5.3 million for co-head of global markets James Forese, $3.6 million for Asia-Pacific region CEO Ajaypal Banga, and $3.6 million for Vice Chairman Stephen Volk. These deferred awards vest over a four-year period, and the executives must be employed on the vesting dates to get the payments.