US
Pandit Revamps Citi's Bonus Structure
Jul 1 2008
Citigroup reportedly is reshaping its bonus system to emphasize divisional cooperation and overall corporate performance.
"We have to put a premium on partnership-like behaviour," an unnamed Citi executive told the Financial Times. The FT describes the change as a key plank in Chief Executive Vikram Pandit's strategy to revitalize the "universal banking" model by fostering synergies among investment banking, commercial banking and wealth management. Pandit reportedly asked Citi's HR chief to draft detailed plans during the next few weeks, and wants to use the new system to determine 2008 annual bonuses.
Citing unnamed sources at the bank, the FT says Pandit ultimately aims "to link bonuses of senior managers and junior employees to Citi's overall performance. However ... .the first stage was likely to involve skewing bonuses to take into account how much shared business each manager generated."
The shift is likely to be unpopular among Citi's work force. Like most investment banks, its current bonus structure reflects group and individual performance far more than overall corporate results. While employees are rewarded for referrals that generate business for a different division, "those sums are modest," according to the FT.
Other global banks are being pressed to overhaul bonus systems along different lines - mainly to assuage regulators' concerns that current systems that massively reward short-term profits encourage the creation of unsound financial structures and risk buildups. Reform proposals focus on rewarding contributions to longer-term profit, and/or making bonuses forfeitable ("clawback") if a position that appeared profitable one year blows up in a later year.
Mr. Pandit has not clearly defined his vision for Citi. This article describes a cultural strategy that can be seen as an corporate wide business strategy. Beyond holding the carrot in a different place, we have no way of judging whether Citi is poised to outperform other than the usual senior executive rhetoric.
Employees and shareholders aren't stupid. They know that when key individuals are jumping ship, and executives are being recruited via cronyism, real incentive wanes. Corporate speeches, typically meaningless to begin with (outside of Crittenden's earnings presentations), become laughable unless an actual strategy is announced and more importantly executed on.
In fairness to Mr. Pandit, I am ambivalent to his performance so far. Proof is in the pudding, and there is no use rating him or a company that was turned on its head by a group of completely incompetent executives, board members, and senior risk managers (Chuck Prince, Tom Maheras, and yes Robert Rubin to name the more visible ones). If by early 2009 there is no clear evidence of outperforming rival banks, then it will be clearer whether Mr. Pandit is worth the acquisition of a now collapsed Hedge Fund
Marc 02 Jul 2008
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