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Pandit Revamps Citi's Bonus Structure

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.

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AUTHORJon Jacobs Insider Comment
  • Da
    Dandy Randy
    9 July 2008

    I am a feeble minion of Citi and I like this move. There are 30K+ employees of this company and there is no reason that 1% should be pocketing 95% of the bonus pool.

    Over the course of a few years, I have seen a tremendous amount of turnover at Citi. In my department alone, headcount is down 25% over the past year, most leaving on their own. The main reason for departure was compensation. Needless to say, this does not make for happy employees. By addressing this issue, Mr. Pandit is assuring that mid and low level employees will stay with the company.

    Citi, being a huge company, relies on many people. Staff retention, resourcefulness and reliability are keys to its growth. Management can only lead the way and point people in the right direction. It is the individual employees of Citi that make a difference and can drive this company into being a world leader. By retaining such employees, the company is focusing on retaining its largest and most important talent pool.

    Smart move, if you ask me........

  • SC
    SC
    8 July 2008

    See the track record of his hedge fund OLD LANE. Never really did well except sell it to Citi and then become CEO

  • 2C
    2Cents
    6 July 2008

    I believe it is too early to judge Mr. Pandit. He has inherited mess and times are tough. To come up with a strategy that will work will not be easy. He will need brilliant team and luck.

  • JE
    JECrumrine
    5 July 2008

    Running it more like a commercial bank that investment bank. That is closer to its roots, right!

    This won't do much to retain M&A and capital markets talent...but they will probably let them go and when they feel like it ramp back up, in true bulge bracket style. This is not a new pattern.

  • Ja
    James Streuber
    3 July 2008

    I agree...he is STUPID and should not have been hired by CITIBANK in the first place!
    CITIBANK needs a new CEO before he sinks the company like ENRON!

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