Citi, 18 Other Firms Paying Retention Bonuses

Before the furor over pay at AIG, most Americans probably had never heard of a retention bonus. But like CDO. and credit-default swap, the term, a bit of sugar-coated corporate-speak, is quickly entering the popular lexicon.

Retention bonuses, it turns out, are not uncommon in corporate America—or indeed among companies that have been bailed out by taxpayer dollars.

Sharon Lorimer

Despite the furor over the bonuses paid by the American International Group, executives at more than a dozen other financial firms that received government money stand to collect many millions in similar bonuses.

At least 19 of these companies, ranging from giants like Citigroup to regional players like SunTrust Banks of Atlanta, have promised to pay certain executives bonuses just for staying in their jobs, according to an analysis conducted for The New York Times by Equilar, a compensation research firm. The payments, in the form of cash, stock or both, are expected to be made over the next few years, in some cases regardless of how the executives or their companies perform.

In some cases, these could rival AIG -style paydays. The bonuses are worth as much as $50.3 million, based on current share prices, and are to be spread among roughly 75 executives.

That compares with the $165 million paid to several hundred employees at AIG But the coming round of retention bonuses, details of which were gleaned from regulatory filings, could be far bigger if the stock prices of the companies rise, as they have lately.

When the bonuses were first awarded, and stock prices were much higher, the payments were valued at nearly $159 million. Many rank-and-file employees are also in line for similar payments or have been guaranteed bonuses upon joining the companies though these are not recorded in company filings, which typically cover only the highest-paid executives.

Companies routinely defend retention bonuses as a way to coax employees to stay on through rough patches. But the idea of giving employees, even valuable ones, a bonus for showing up at work might strike many ordinary Americans as absurd, particularly at a time when so many jobs are disappearing.

Even some compensation consultants, who generally support such bonuses, concede that the fracas over AIG has given these payouts a bad name. Some suggest a bit of rebranding is in order, and that the term “retention bonus” could disappear, even if the payments do not.

“The notion of paying someone extra money to stay put and get something done in difficult times is not something that’s going to go away,” said Brian Foley, an executive compensation consultant based in White Plains, who says many companies are better off paying the bonuses than losing good employees.

Most of the bonuses tallied by Equilar, like those at AIG, were promised before the firms received taxpayer money. In some cases, the bonuses are to be paid to executives who were in place as the companies were brought to their knees by the financial crisis. In others, they are to go to executives who were hired to turn around the companies.

AIG employees have agreed to give back about half of their controversial bonuses. But with Congress threatening to impose a heavy tax on bonuses paid this year by the insurance company and other firms that accepted large bailouts, the financial industry is moving rapidly to find new ways to reward its employees, including increasing cash salaries.

Citi Most Generous?

Of the 75 biggest bailout beneficiaries, Citigroup appears to have been the most generous with its top executives, according to Equilar. Over the last 15 months the company showered at least nine top executives with stock and cash, payable in the future.

Equilar estimates that the combined awards, together worth about $80 million when they were made, are now worth about $27 million, given declines in the company’s stock price; the value could of course change again in the future. The awards vest over either two or four years, so it is unclear precisely how much remains to be paid out.

Vikram S. Pandit, Citigroup’s chief executive, received a supplemental stock grant initially worth $2.5 million. He took no bonus in 2008, and is collecting an annual salary of $1. But Mr. Pandit made about $165 million when he sold his hedge fund to Citigroup when he joined the company just two years ago.

Three senior leaders—Stephen R. Volk, Lewis B. Kaden and Michael S. Klein—were awarded $38 million in early 2008, with at least a portion of the payments linked to performance.

Mr. Kaden, who supervised Citigroup’s chief risk officer as the company pushed into risky mortgage investments, was awarded a retention bonus then worth more than $8 million in cash and stock.

Mr. Klein, who headed Citigroup’s investment banking operations, was given a retention package in cash and stock worth $19.3 million. Even though he announced his departure a few months later, the board nonetheless paid him his full $5.5 million cash bonus in connection with that award. That was on top of nearly $28.8 million in two other cash payouts — one due on March 31, the other in October—for agreeing not to work for several Citigroup rivals.

In a proxy statement filed this month, Citigroup said: “The awards were made to balance the need to retain key executives, who received significantly reduced cash and total awards, at market levels while linking their compensation to Citi’s future performance.”

A Citigroup spokeswoman declined to comment.

Bonuses at Fannie Mae

At least four top executives at Fannie Mae, now operating under government conservatorship, stand to receive a total of as much as $1 million each over the next two years. The awards to four executive vice presidents are one-third performance-based, with the balance of the money to be paid out in April and November of this year.

Freddie Mac has adopted a similarly staggered cash bonus structure for at least three top executives, paying them 65 percent of the bonus amount for staying at the company through December of this year and the remaining 35 percent, based on meeting performance targets, in March 2010.

Representative Barney Frank, Democrat of Massachusetts and chairman of the House Financial Services Committee, demanded last week that regulators rescind bonuses paid to executives at Fannie Mae and Freddie Mac, which have received more than $59 billion from taxpayers since they were taken over.

But their regulator, James B. Lockhart III, rebuffed that suggestion. And Fannie’s chief executive, Herbert M. Allison Jr., quickly struck back in a note to employees, decrying the injustice of letting the firestorm surrounding AIG’s bonuses spread to Fannie Mae.

“It is simply inaccurate to say, as some have, that in this difficult job market our highly skilled, professional employees have no place else to go,” wrote Mr. Allison, who did not receive any salary or bonus last year.

It is not just financial giants that have embraced these types of bonuses. In January 2008, SunTrust Banks jettisoned its broad-based performance bonus program for a one-time grant of restricted stock after it fell short of its financial goals the last two years. In its recent proxy, SunTrust’s compensation committee called the award “very important to retaining talent.”

While some smaller banks are rethinking such bonuses because of tough times, First Horizon of Tennessee said it had no plans to do so. Although the lender is sensitive to the public outcry, John Daniel, First Horizon’s head of human resources, said that retention awards for several top executives were crucial to the bank’s recovery plan.

Still, if bonuses do not keep people in their seats, the grim job market might. “Right now, there just aren’t many places for people to go,” said Timothy L. Holt, an executive recruiter at Heidrick & Struggles.

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