It’s a perfect day for reports to emerge from Washington about the US administration’s plans to curb pay for bank employees – including traders and loan officers as well as executives.
It comes on the heels of Thursday’s stark admission by Citigroup CEO Vikram Pandit that, well, yes, $100m is a bit much to pay any bank employee in annual salary.
As Reuters reports, Pandit’s remarks came as he appeared before an audience in New York, and was subsequently questioned about the case of Citi’s star energy trader Andrew Hall, who runs the bank’s hugely lucrative energy trading unit Phibro. Asked if $100m was too much money for a Citigroup employee to earn given the government support the bank has received, Pandit said, “Yes.”
Hall is contractually entitled to a 2009 pay package that could be worth $100m. Prior Citigroup management signed the agreement that compels the bank to pay Hall so much, Pandit said. Various executives and officials have been trying to keep the three-way tussle between Citi management, Hall and the US government over his pay package low-key. But no longer.
As Reuters notes, Hall’s massive pay package is “a serious challenge” for Kenneth Feinberg, President Barack Obama’s “pay czar” who has been appointed to review executive pay at banks that accepted government bailouts.
If Feinberg is seen as soft on Hall’s pay, there could be an ugly backlash, as Pandit — and the White House — undoubtedly know all too well.
Hall’s potential $100m payday is equal to about 2,000 times median household income in the US in 2008, Reuters reminds us. Not just that — t’s a mind-boggling leap from Pandit’s salary this year of precisely $1 (and no bonus) — terms he readily signed up for amid the heights of “bonus rage” early this year.
It must have hurt to try to defend Hall’s $100m package, and Pandit has obviously stopped trying.
He also showed good timing in announcing the restructure or spinning off of Citi’s Phibro energy trading business. Pandit told the the same audience, at a forum at Manhattan’s 92nd Street Y, that Phibro “will be restructured and rationalised”, and indicated that Citi wants to reduce its ownership in the unit and get it to manage money from outside investors.
Meanwhile in Washington, plans are being finalised for the government’s pay curbs on employees at bailed-out banks. As the Wall Street Journal reports, policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions.
The Fed’s plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks’ corporate boards and executives, the Journal notes, adding:Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees — from chief executives, to traders, to loan officers — to take too much risk. Bureaucrats wouldn’t set the pay of individuals, but would review and, if necessary, amend each bank’s salary and bonus policies to make sure they don’t create harmful incentives.
Related links:
On Wall Street: Feinberg against the $100m man – FT