Tuesday, April 28, 2009

Bonuses are back baby!!

In another stunning sign of Wall Street's disconnect from reality, Citigroup has apparently gone to Washington asking for special permission to pay bonuses to employees that have been wiped out by the collapse of the company's stock.

Hmmm, do you think that all of the pensions, 401k, mutual funds, etc, that bought Citibank at $55 will get a little cash kickback to ease their pain of a stock at now at $3? Of course not, but that's the logic being displayed by Citibank.

I've said for some time that huge portions of Wall Street pay that was tied to the stock prices of the investment banks would be a problem. If you were a hot shot trader making $1 million in salary and $5 million in bonuses, some 70-80% of that money would have been in the form of stock. If the stock goes from $50 to $5 your bonus went from $5 mil to $500k. Again, this is still substantial money, but for someone planning on having $6 mil, $1.5 mil might be a shock to their system.

"Citigroup is trying to get U.S. approval for special bonuses for many employees in the rest of the company. In a meeting earlier this month with Treasury Secretary Timothy Geithner, Citigroup Chief Executive Vikram Pandit made the case for the stock-based bonuses. Executives are describing the bonuses as “retention” awards designed to perk up demoralized employees who the company worries are vulnerable to poaching by rival firms, people familiar with the matter said.[...]

[...]Citigroup executives say they are worried that employees, who have seen much of their past bonuses, paid largely in stock, wiped out by the collapse of Citigroup’s share price"


Cheers!

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