Citigroup plans to announce a new executive compensation system in which the top executives at the firm will see sharp reductions in their yearly pay packages if the firm's fortunes continue to sour, people close to the firm tell CNBC.
The plan comes just weeks after Citigroup receive a second, $20 billion injection of capital from the federal government and promises to cover more than $300 billion of the megabank's exposure to toxic mortgage-backed securities.
- Major shareholders of Citigroup
Investor fears about Citigroup's balance sheet recently sparked a runt on Citigroup's stock that sent shares reeling to close to $3, before recovering to just above $6 following the bailout from the Feds.
Under the plan, CEO Vikram Pandit will receive no bonus for the 2008, nor will chairman Win Bishoff, based on Citi's dismal performance this year, where the firm announced multiple quarters of losses stemming from its bad bet on mortgage debt.
The plan calls for Citi's most senior executives, including the CEO, to take the biggest hits in compensation when the firm's bottom line suffers. Senior executives will receive much of their future cash and stock bonuses in a deferred fashion that is "vested" in three years time when the executive can claim ownership to the money.
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The plan will also feature a clawback provision where the firm can recoup money from top executives if the performance of the firm sours after a big payday, in addition the top five executives at the firm will receive no severance if and when they leave.
Citigroup officials say the plan was developed internally by Pandit himself, but they confirm that they have been discussing executive compensation reforms with officials in the federal government, which have been increasingly more involved in Citigroup's operations since the big bank asked for its most recent bailout.
Wall Street executives have been under tremendous pressure from Congressional leader to scale back bonuses paid to top executives since the federal government made direct capital infusions into the nation's biggest banks and brokerage firms that have been teetering amid the financial crisis.
It's unclear if other firms will follow Citi's example, which will be more fully described in a public filing this afternoon, but already CEOs of big firms like Morgan Stanley's John Mack and Goldman Sach's Lloyd Blankfein have said they won't take bonues this year.
Both Goldman and Morgan announced fourth quarter losses; for Goldman it was the first quarterly loss since it became a public company in 1999.