On Wednesday, news broke that Citigroup (NYSE:C) plans to increase salaries company-wide by as much as 50%. This comes just months after the bank accepted $45 billion in TARP dollars. At first glance, this looks like a blatant slap in the face to American taxpayers who are basically on the hook for the trillions of dollars in federal relief offered to a myriad of corporations across the nation. However, this is a complicated and multi-faceted issue that isn't as black and white as the newsprint it's being reported on.
IN PICTURES: 10 Biggest Losers In Finance
Not The Only Ones
Citi joins UBS AG (NYSE:UBS) and Morgan Stanley (NYSE:MS) raising salaries for their executives and employees by substantial amounts in lieu of the restrictions placed upon them by the government on compensation and bonuses.
Citigroup will also be awarding additional employee stock options to entice their employees to stay with the troubled bank. With these announcements coming so soon after the public backlash and subsequent government restrictions against the million dollar bonuses being paid to high-ranking managers and executives of the big banks, there's little doubt that the American taxpayers will voice their displeasure.
As easy as it is to crucify these banks for finding loopholes in the system to compensate their employees with large pay raises rather than bonuses, there are always two sides to every coin. Citigroup, along with all other investment banks, have had to fire a fair amount of their managers and employees in the wake of the financial meltdown, and those left must be constantly wondering how safe their jobs really are.
The banks need to find a way to keep their brightest minds in the fold to once again be profitable businesses, and the best way is to reward hard-working employees who have survived the corporate purge is through monetary compensation. Also, in order for the American government to see those TARP funds paid back in the relatively near future, these banks need to be able to become financially strong companies again, and behind every great company are great employees.
These banks need to give their executives and employees job security and compensation that is indicative of the profits they earn the firm. Sometimes, that's easier said than done. (For more, read Liquidity And Toxicity: Will TARP Fix The Financial System?)
The Bottom Line
It may still be years before the big banks return to their once prominent perch atop the financial world, but with these recent announcements they are trying their best to keep their employees happy, all the while attempting to avoid the impending public backlash that is almost certain to follow. I don't know what will happen, but you can be sure that investors will have their say. (To learn more, see Executive Compensation: How Much Is Too Much?)