Citigroup's

(C) - Get Report

reported plan to raise employee salaries this year by as much as 50% has rankled at least one activist investor group.

The American Federation of State, County and Municipal Employees, or AFSCME, plans to send Citi a letter criticizing the company's reported plan to change its compensation structure to a plan that does not foster successful performance in the long term.

"Our concern is that it seems the bulk of this money will be focused on the traders, so that will create a win-win situation for them ... guaranteeing a very high salary, and then on top of that they will have an additional huge upside because restricted stock is going to be converted into options so that there should be a huge pay day for them in the future," says Rich Ferlauto, AFSCME's director of corporate governance and pension investment.

"What we would like to see is appropriate incentives in place for the creation of value," he says.

Citi, in a statement, made a well-worn argument among financial companies justifying big salaries and bonuses in the financial crisis: it needs to offer competitive compensation to retain and attract top talent.

"Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment," the company said in its statement. "Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation."

Reports surfaced on Wednesday that Citi is planning to raise the base salaries of workers by as much as 50% this year to help compensate for cuts in annual bonuses and to retain top talent departing as the company continues to be under government scrutiny.

The plan by the banking giant means most Citi employees will make as much money as they did in 2008, although some might earn more and others less, the

New York Times

reports. The company also plans to award millions of new stock options to try and retain employees.

The biggest base-pay increases will go to investment bankers and traders,

Bloomberg

and the

Times

report, citing people familiar with the plan. Workers in consumer banking, credit cards, legal and risk management will see a smaller salary adjustment.

The U.S. government has injected a total of $45 billion in Citi and will soon have a 35% stake in the struggling bank.

AFSCME's letter, expected to be sent to Citi as early as Thursday, will be similar in scope to a letter the pension fund sent to

Morgan Stanley

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on Monday. In May, the company increased compensation for its top executives by raising salaries and cutting bonus payouts, a move intended to curb excessive risk taking.

Bank of America

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has also reportedly sweetened its compensation to keep talent from hitting the road.

Instead of raising salaries, Ferlauto says that traders and other highly compensated employees should received a cash bonus "that would be paid out over three years, but held in escrow until it's clear that performance metrics were accomplished."

"We're not looking for a giveaway," he says. "We're looking for longer-term performance metrics. We don't want traders to take huge bets that might push up the stock price temporarily."

Still, other shareholders say that the moves by Citi and other companies to boost salaries and curb bonuses should come as no surprise.

"I also don't think that anybody should be outraged by it," says Bernie McGinn, founder and CEO of McGinn Investment Management in Alexandria, Va., who owns shares of Citi.

Citi's got a "talent outflow" and they've "got to maintain talent to be competitive," McGinn says. For example, Citi's head of Asia Pacific operations

Ajay Banga

on Friday resigned to take a senior management position at

MasterCard

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.

"I'm sure this is an attempt to play it both ways ... reduce overall salary to a level that is politically acceptable and the other hand to raise it so that people stay where they are

until Citi and the economy gets through the crisis," he adds. "The sad part is now it has to go through the political lens."

Ferlauto also says that Citi should prioritize compensation packages towards hiring additional executives with retail banking experience.

"If Citi's future is to be a larger retail bank and the focus is on recreating Citi as that bank, do they need to spend so much money attracting traders, when they should be investing in traditional bankers?"