Why Citi’s right to raise salaries

By Felix Salmon
June 24, 2009

John Carney is underwhelmed by the news that Citi is raising its base salaries:

Let’s break this down in the simplest terms: this is a disaster. Without taxpayer guarantees and funding, Citigroup would be unable to give its employees higher base salaries. The best employees would leave for other firms. This market process would further diminish Citi and enhance its better managed competitors. Everyone, except Citi shareholders and some of its senior management, would be better off. Instead, taxpayer funds are being used to block this market process, trapping talent inside a failed firm and rewarding management’s worst mistakes.

The problem with this argument is that without taxpayer guarantees and funding, Citigroup would be unable to give its employees any base salaries at all, or bonuses, or anything but a pink slip. Citi is too big to fail, which means the US government has to support it. At the same time, the stated aim of the Obama administration is to be as hands-off as possible when it comes to its ownership stake in banks — something which Carney in general supports. (I’m sure he wouldn’t want the government interfering with loan decisions, for instance.)

If you’re going to leave Citigroup’s senior management to run the company, you have to let them decide on things like the proper ratio of bonuses to base salaries. And since that ratio was obviously far too high in the past, it has to come down substantially. And a sensible way of bringing that ratio down is to raise base salaries (and, of course, reduce bonuses as well).

There’s no reason why Citigroup can’t take the lead in rationalizing its compensation structure. If part of that rationalization involves raising base salaries, fine. Resorting to “if it wasn’t for us taxpayers you wouldn’t exist at all” is unhelpful.

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Comments
10 comments so far

Hey Felix. I read your opinion and here’s mine…

I don’t give half a f-ck about whether Citi is too big to fail. I don’t give a f-ck about their management or their employees. I especially don’t give any f-ck at all about your argument that “if it wasn’t for us taxpayers, there would be no Citi at all” is unhelpful. You are a whiny little c-nt. Are you an idiot or just young and ignorant?

What we should do, and should have done is let the bastards fall and burn. Instead we prop them up to continue business as usual.

You, sir, and your column here are unheplful to our country, our citizens and to ever learning from this criminal enterprise we called banking up until a year ago.

Posted by Joe Mass | Report as abusive

Let’s work on the buy-in premise of ‘rationalization’.

Too high, too low, just right. Alright, we can run with that. It rather actaully lets the open market make the determination.

Much like ‘too big to fail’ does not; allowing for the passage of time and regulatory safeguards – there should be no such phrase in use.

As to transparency, when will the regulators themselves be OPEN to independent audit?

Posted by Hank Reardon | Report as abusive

any increase in this economy after the bailout proves these people are nuts; much less 50% are you people insane? if you are not happy with your job elevator goes to lobby don;t let doors hit you on way out. Good luck finding another job – you company losses money no bonus; no raise; no perks STFU or leave end of story!

Clearly these people just do not get it still – its time to close this place down break it up; sell it take the hit. As an investor and principle shareholder I’m ok with that

Posted by Dr Qui | Report as abusive

How can people be so short sighted? Instead of failing this company just like GM and all the other ones the government has nationalized is going to suck down taxpayer money forever. You’re trading short term pain for something much worse.

Posted by peterg | Report as abusive

The increase is for mainly Investment Bankers, and Traders. The government intervention has created a very skewed incentive system for top management at Citi (more so than what existed at the beginning of the crisis) At this point, they have to go for home runs, using tax payer money, so make sure CITI gets profitable again (not necessarily helping the economy). Currently, the only areas where easy money is available is in trading, specifically fixed income trading. And so, Citi Management will go all out to retain people there. Nothing wrong with that, except that its not going to help the economy one bit. Not like in China, where the banks are state run and have been mandated to expand lending or face harsh consequences.

Posted by Dr. Rational | Report as abusive

Citi is the hardest hit of the big banks — so why the f-ck are its execs and vps going to get a 50% salary increase? The rest of America is getting their income cut. Why are the bridge crew of America’s most failed bank getting piles of cash? Screw their 2008 salaries. The rest of us aren’t making our 2008 salaries, why should they? I hope this news gets out, and people start cutting their Citi ties in protest.

Posted by frede | Report as abusive

As a invester and having account with Citi, I now plan to withdraw my money and close my account. I rather dug a hole in my back yard and put my money there then for trust in these kind of financial institution.

Posted by Paulsu | Report as abusive

you have to appreciate the irony in this. we hear for months how the unions shouldnt be getting such a good deal at GM and Chrysler, and yet we dont bat an eyelid when a union (essentially) at Citi manages to get a raise despite poor performance. i mean this would be equivalent to Ron Gettelfinger negotiating a raise for union workers after gm went into bankruptcy. Should the government be intruding in pay discussion? only in as far as it is state money that is supporting this extravagance. If you dont have the nerve to see companies fail, the least you can do is make sure that they are operating in ways that are rational rather than expanding their rent seeking. I agree that we shouldnt be attacking everything, but there is very little sign that this is a move to rationalize compensation as opposed to an incentive to stay etc. In fact given what we have just learned, what makes anyone think that this is the right step in the direction of rationalization?
Hats off to Joe Mass for putting it in more eloquent terms than most of us.

Posted by dazedandconfused | Report as abusive

Surely I’m not the only one who thinks that the follow-through on the “reduce bonuses as well” part is going to happen… well, never.

Posted by Patience | Report as abusive

This would be laughable if it weren’t such an incredibly serious issue. Apparently, Mr. Salmon has his head so far up Citi’s behind that he’s failed to notice (or even mention) that these bonuses come not only on the back of the TARP funds but a $4 increase in overdraft fees (up to $34 from $30) and increased ATM fees for non-Citibank members (from $2 to $3). Not to mention foreclosures are up 22 percent from last year [http://www.nytimes.com/2009/07/05/busin ess/05gret.html]. Simon Johnson, the chief economist of the International Monetary Fund from 2007-08, recently argued [http://www.theatlantic.com/doc/200905/i mf-advice] that any bank that’s too big to fail is too big to exist. Who you gonna believe: Mr. Johnson or some two-bit hack blogger?

Posted by Michael | Report as abusive
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