Citi to Cut Pay to Improve Performance

Citibank becomes the latest investment bank to rethink its bonus system for top managers in the aftermath of huge losses and write-downs. As part of a cultural overhaul, Citi CEO Vikram Pandit wants to create greater synergy between its investment banking, commercial banking, and wealth management divisions.

“The new compensation plan is absolutely crucial to put teeth behind Vikram Pandit’s strategy,” a Citi executive told the Financial Times. “We have to put a premium on partnership-like behaviour.”

Citigroup, which has posted more than $15 billion of losses in the last two quarters, in recent years has underperformed its banking peers. In the last three quarters, it has recorded more than $40 billion of write-downs and credit losses from repackaged subprime mortgage debt and other underperforming assets.

If Citi's senior managers have more of their compensation tied to the performance of other parts of the bank, they may do a better job of risk management in the future, David Hendler, an analyst at CreditSights in New York, told Reuters today.

"It should create more sensible risk taking. People will give more thought to the impact of their actions not just on their group, but on the whole company," Hendler said. Citi is laying off employees as it tries to cut costs. The bank has said it is cutting about 6,500 jobs in its investment bank, for example.

Pandit, according to the FT, has told colleagues he wants a new bonus system in place by year end.