*Citi looking at commissions, other measures to keep staff
*New possibilities could be difficult to execute
*US banks losing staff to hedge funds, foreign banks
By Dan Wilchins
NEW YORK, May 4 Citigroup may put more
employees on commission or offer them larger base salaries as
it tries to retain key staffers without running afoul of laws
limiting executive pay at banks that receive government funds.
Three people familiar with the matter said the bank has
examined a series of possible moves, including special
stock-based bonuses, or offering employees a percentage of
their group's revenue.
Banks across Wall Street are struggling to reward top
performers without violating an amendment to the 2009 stimulus
package limiting executive pay. That amendment calls for the
Treasury Secretary to review compensation of top employees at
any major recipient of funds from the government's Troubled
Asset Relief Program.
Bonuses are expected to face particular scrutiny after Wall
Street firms paid $18.4 billion of bonuses in 2008, a year in
which the U.S. financial sector required more than $1 trillion
of government support.
Some banks, most notably Goldman Sachs Group Inc, (GS.N)
hope to repay their TARP funds as soon as possible, in part to
avoid having to comply with pay limits.
Citigroup, which has received $45 billion of TARP capital
and is not believed to have much hope of paying the government
back anytime soon, is having discussions with the government
about measures that might be appropriate for retaining revenue
A number of possibilities are under discussion, and
generally are geared toward ensuring that employees are
motivated to perform well. The No. 3 U.S. bank will have a
better sense of how to proceed once the Treasury Department
crafts more specific guidelines on pay, one person said.
Of particular concern is the Phibro business, which has
been extraordinarily profitable. If Citigroup cannot find ways
to compensate people there, the energy trading business may be
spun off, sold, or opened to outside investors, a person
familiar with the matter said. News of this possibility was
first reported in the Wall Street Journal.
The Wall Street Journal also reported that Citigroup had
asked the Treasury Department for permission to pay special
bonuses to key employees. One scenario discussed internally
would be a one-time bonus paid to employees mainly in stock
that would vest over at least three years.
Citigroup spokesman Stephen Cohen said in an emailed
statement that the bank has not presented Treasury with any
specific plan for staff retention or special cash payouts.
"Citi continues to examine ways to ensure its employee
compensation practices are competitive in this very challenging
market environment," Cohen said in the statement.
The alternatives that Citigroup is considering to standard
discretionary bonuses still have flaws with them, experts
Commissions, for example, only work well for professionals
in sales positions, and even then can lead to conflicts over
which sales person was responsible for a deal. Giving
percentages of revenue could result in outsized paydays if a
business outperforms, which could lead to public outcry.
"There's no perfect answer to this issue," said Michael
Holland, founder of Holland & Co, which oversees more than $4
STEMMING THE EXODUS
But banks have every incentive to figure out how to retain
their top staff. On Monday, a source said two equity traders
and a salesman from Bank of America Corp (BAC.N) moved to hedge
fund giant Citadel Investment Group. Foreign banks such as
Deutsche Bank (DBKGn.DE) have also been able to hire employees
from U.S. competitors.
In fact, banks that are not profitable will likely have
trouble from a political standpoint paying employees anything
but stock in bonuses, while banks that are profitable will
likely look to repay TARP as quickly as possible to eliminate
restrictions they face.
"I just don't think all this planning for other ways to pay
people will amount to anything," said Paul Sorbera, a recruiter
at Alliance Consulting in New York.
But for now, banks are concerned about retaining staff, and
ensuring they are properly motivated.
"If we can't pay people competitively, we can't expect them
to stay here," said one bank executive.
(Reporting by Dan Wilchins; Editing Bernard Orr)