Citigroup to Overhaul Management Bonuses
Citigroup is planning to change its bonus system for senior managers to encourage different parts of the vast company to cooperate and help one another win business, a person familiar with the matter told Reuters.
The change could be difficult to execute, because measuring cooperation can be difficult, experts said. But giving managers incentives to work together fits in with Chief Executive Vikram Pandit's broader strategy of turning around Citigroup by breaking down the divisions between different parts of the bank, instead of breaking apart the financial conglomerate.
Citigroup , which has posted more than $15 billion of losses in the last two quarters, has underperformed its banking peers for years. In the last three quarters, it has posted more than $40 billion of write-downs and credit losses from repackaged subprime mortgage debt and other underperforming assets.
If Citi's senior managers have more of their compensation tied to the performance of other parts of the bank, they may do a better job of risk management in the future, said David Hendler, an analyst at CreditSights in New York.
"It should create more sensible risk taking. People will give more thought to the impact of their actions not just on their group, but on the whole company," Hendler said.
Citi is laying off employees as it tries to cut costs. The bank has said it is cutting about 6,500 jobs in its investment bank, for example.
The goal is to create a partnership-like culture at Citi, where every senior manager takes responsibility for the performance of their group and the firm as a whole, the person familiar with the plan said.
Citi's plan to retool its bonus system was first reported in the Financial Times on Sunday evening.
Goldman Sachs has performed comparatively well during the credit crunch, a feat that many investors attribute to the fact that the company was a partnership as recently as the late 1990s, and still has a partnership culture.