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Citigroup raises salaries to offset curbs

CITIGROUP Inc is raising salaries across the company to offset restrictions on bonuses after the troubled bank accepted US$45 billion of federal bailout money, but the move could backfire if it drives top-performing workers to other employers.

The people familiar with the plans said the changes mean some employees may be paid more and others less, but overall compensation should be unchanged as higher salaries offset lower incentive payouts.

Citigroup also expects to issue new stock options to offset a 95 percent drop in its stock price since late 2006, one of the sources said. The sources requested anonymity as they were not authorized to discuss the plans.

The changes may help Citigroup better control risk by reducing the focus of investment bankers and traders on performance-related bonuses. Yet because bonuses often account for the bulk of pay for top talent, capping total pay might make it harder for the bank to lure and keep key personnel. "I don't discount the value of raising guaranteed pay in an uncertain environment," said Ravin Jesuthasan, who leads the rewards and performance management practice at Towers Perrin in Chicago. "It raises the issue of whether that is the best use of money for the most pivotal talent. The superstar might go with the million-dollar deal rather than see his pay capped." Citigroup's changes follow the Obama administration's naming this month of Kenneth Feinberg as a special master to oversee pay practices at the third-largest US bank and six other firms that got "exceptional" federal aid.

Feinberg's authority over compensation extends only to the 100 highest-paid employees.


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