Trying to avoid the saga AIG faced when it paid out bonuses to its employees earlier this year, Citigroup has asked its patron--the Treasury Department--for permission to pay similar bonuses to its employees. Citi is on the path to being 36% owned by the taxpayers, as the Treasury prepares to take more common stock in the company. As such the financial giant feels compelled to ask permission to do pretty much anything significant, even for determining employee pay agreements.
Why the Treasury Department feels it knows whether employees at a bank deserve a bonus or not is beyond me. Unless they are just going to assess that based on political concerns. Which is more likely, making them perfect for the job--but it certainly is not the way personnel management should be run.
Meanwhile, the Wall Street Journal is reporting that:
"Citigroup is grappling with broad government pay restrictions that could break apart its legendary energy-trading unit. People at that unit, Phibro, are threatening to leave because of pay caps tied to the U.S. bailout of Citigroup. Phibro has been the source of hundreds of millions of dollars in profits for the bank, and has paid out hefty compensation, including a roughly $100 million windfall last year for the unit's leader, Andrew Hall. Citigroup is looking for ways to free Phibro from the federal restrictions, including a spinoff of the unit, according to people familiar with the matter."
Should it be surprising that business people, especially in internal departments of bailed out firms, are afraid of a politically incentivized Washington setting their salaries? More on this in my commentary posted yesterday. Also see Reason Mag's Katherine Mangu-Ward on TARP bank executives getting headhunted.