Citigroup (C) Bonus Cure Worse Than Disease

Citigroup (C) is preparing a big overhaul to its bonus system for top managers, the FT says. In a bid to reduce in-fighting and to reward “co-operation across different divisions and the performance of the company as a whole,” CEO Vikram Pandit will implement a new system whereby bonuses are linked to Citigroup’s overall performance rather than a manager’s specific division:

[T]he ultimate goal was 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.

This is a fine idea in theory: Anything to encourage teamwork. Unfortunately, it won’t work in practice.

Every time there’s a downturn, Wall Street swears off its star system and vows to pay performers based on the overall performance of their firms. Then a bull market comes along and the stars start getting huge guarantees from other firms, and firms have to make similar guarantees to get them to stay.

If Citi won’t pony up, then its stars will be happy to work somewhere else. Similarly, if Citi tries to lure talent with promises of “discretionary bonuses based on the performance of the firm as a whole” (i.e., bet your future on some idiot trader not vaporizing billions), the stars it wants to hire will be happy to stay at their current firms.


Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.