Executives at Citi Follow Other Banks' Lead in Declining Bonuses to Head Off Furor

Pity the poor Citigroup executive who must forego his bonus purely to ward off near-certain flogging by the media and angry taxpayers footing the bill for its bailout.  The Citi chiefs recognized that paying themselves bonuses in a year where they flushed billions of dollars down the toilet and required two bailouts from the government would be political suicide.  The New York Times article quotes Vikram Pandit with: "The harsh realities of 2008, primarily our earnings results, mean that our bonus pool is dramatically lower than last year."    The article goes on to say that bonuses at the top will be down at least 40% for 10 members of its senior leadership team.  Call me crazy, but somehow "at least 40%" doesn't cut the mustard for me.  I would like to recommend "at least 77%" instead, for that is precisely how much Citi's stock was down in 2008.  Or how about "at least 95%?"  For this is the indignity that Wachovia employees were handed for coming in to work in 2008.  Despite Wells Fargo rescuing the Wachovians from their fate as future employees of Citigroup (or more likely just members of the unemployed) after an FDIC seizure, according to the New York Times story, the California bank is refusing to cough up retention packages and bonuses to Wachovia's employees to compensate for Wachovia's stinginess.  A top Wells Fargo executive is quoted with announcing to a group of Wachovia's bankers the following "I know that's very painful to hear, but that's the reality.  It just would have been irresponsible to the company's shareholders to do anything else."  The New York Times managed to find an embittered Wachovia third-year Vice President, who at least had the presence of mind not to identify himself, to make the audacious claim that the bank's decision was putting its employees in "financial extremis" and in some cases, at risk of not making their mortgage payments.  While it is certainly true that if you spent every cent of your bonus money during the biggest boom Wall Street has ever witnessed, and assumed that your bonus was guaranteed ad infinitum, then yes, you are definitely up the creek now that you can't make the mortgage payment on your $(insert a number) million house.  The thing is, that's not really your employer's problem, nor should it be.  

For years, private equity and hedge funds fed the finance compensation boom by poaching already highly paid Wall Street employees and offering them a bigger piece of their profits.  While alternative asset managers rewarded very richly to the upside, they can't pay when they lose money, as 20% of 0% (and more likely negative returns) is still a big fat donut.  After a brutal year for hedge fund and private equity returns, coupled with record redemptions, the competition that was willing to pay up for "talent" is gone.  It seems that several boom years on Wall Street corrupted some executives and employees into thinking that they should get a bonus every year no matter what, even if their employer lost, for example, $22 billion in a quarter (i.e. Wachovia,) was seized by the FDIC, and more than likely would not have been saved by another bank if it weren't for the government's largesse.  

While my thoughts go out to the naive third-year Vice President quoted anonymously in the New York Times article who now finds himself in "financial extremis," I'd like to offer some unsolicited words of wisdom:  First of all, congratulations, you still have a job.  Second, suck it up, downsize, kiss some ass, and keep your thoughts to yourself at work as well as dinner parties, particularly if you happen to go to dinner parties with people who don't have six-figure salaries or are unemployed during a major economic downturn.  And last, never forget that third-year Vice President = Very Expendable.