Report: Citigroup plans boost in salaries

Citigroup Inc. is increasing base salaries for many of its employees, with some getting as much as a…

Citigroup Inc. is increasing base salaries for many of its employees, with some getting as much as a 50 percent boost, to help offset smaller bonuses, according to a New York Times report published Wednesday.

Citi faces restrictions on bonuses as part of a new government compensation oversight plan because it received bailout funds from the Treasury Department. By shifting the mix in compensation packages, it will allow Citi to pay most employees as much as they received in 2008 while adhering to bonus caps, according to the Times report citing anonymous sources.

“Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment,” Citi said in a statement Wednesday. “Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation.”

The New York-based bank has been among the hardest hit by the credit crisis and ongoing recession. It has received $45 billion in loans from the government. A portion of those funds will be converted to common stock in the coming months, giving the government a 34 percent stake in the bank.

Bonuses awarded to employees at financial firms that received government bailouts have come under heavy scrutiny in recent months. Earlier this year, American International Group Inc. came under fire for bonuses it paid to employees at one of its most troubled divisions. AIG was rescued from the brink of collapse by the government last fall.

The Obama administration has blamed compensation plans for encouraging excessive risk-taking that pushed the financial services sector into chaos last year.

The administration recently named Kenneth Feinberg a “special master” to oversee compensation packages awarded to the seven companies that have received the most government support, including Citigroup. Feinberg can reject pay plans he deems excessive and review compensation for the top 100 salaried employees at those companies.

Ensuring compensation for employees by increasing salaries could be a move banks facing government restrictions take to avoid losing workers to competitors. Some banks that received government loans during the mushrooming credit crisis last fall have already paid back their debt, and are no longer subject to compensation oversight. That could allow them to offer lucrative deals to entice employees away from banks where restrictions are still in place.

Aside from the boost in salary to offset the lost bonuses, Citi is also planning to award new stock options to employees to help ensure they remain at the bank, according to the Times report.