Leadership Matters: Citi's Pay Dilemma

As some financial institutions are still within the indentured servitude of the federal government, while others are not, we can see the free market consequences of federal intervention in executive pay schemes. Those institutions still under government regulation, such as Citigroup(C Quote), are finding that some of their top talent is being recruited by competing organizations that no longer have such strictures.

For example, Goldman Sachs (GS Quote) announced a proposed budget of $20 billion for executive bonuses in 2009 -- an increase to $700,000 a person from $360,000 a person in 2008. Similarly, Morgan Stanley (MS Quote) has set aside between $11 billion and $14 billion for executive incentives.

At the same time, a great deal of uproar has been heard about Citigroup's decision to raise base salaries by as much as 50% and in some cases offer guaranteed contracts in order to offer competitive compensation packages. The complaint has been that employees of Citigroup will in many cases make as much, if not more, than they did prior to the bailout and that the executives at Citigroup are speaking out of both sides of their mouth. On the one hand, they greatly reduce bonuses; on the other hand, they greatly increase salaries. ...