On his resume, Vikram Pandit only claims to have a Ph.D. in Finance from Columbia Business School. But it is increasingly becoming clear that he must also have a second Ph.D., even though he doesn’t like to boast about it. A Ph.D. in Simply Not Getting It.
After all those losses and bailouts, rank-and-file employees of Citigroup are getting some good news: their salaries are going up.
The troubled banking giant, which to many symbolizes the troubles in the nation’s financial industry, intends to raise workers’ base salaries by as much as 50 percent this year to offset smaller annual bonuses, according to people with direct knowledge of the plan.
The shift means that most Citigroup employees will make as much money as they did in 2008, although some might earn more and others less.
But that’s not all, by any means. How about this doozy?
The company also plans to award millions of new stock options to employees in an effort to retain workers and neutralize a precipitous drop in the value of their stock holdings.
The whole point of giving stock options to employees and executives, Dr. Pandit, is supposed to be to make them care about not taking actions which cause “a precipitous drop in the value of their stock holdings”. If you just go ahead and give them more options to neutralize precipitous drops, that kind of neutralizes the whole incentive to care about destroying share value, doesn’t it?
Of course, it’s not just Citigroup but the whole damn industry that has an extremely bizarre attitude to compensation. Here’s how the industry is tightening its belt in response to the economic carnage that has still not finished working its way through the economy (the economic carnage that the industry itself unleashed):
Outsize pay on Wall Street, particularly the industry’s bonus culture, is widely seen as having encouraged the risk-taking that led to the gravest financial crisis since the Depression. But industrywide, total compensation is expected to rise 20 to 30 percent this year, approximately to the levels of 2005, before the crisis, according to Johnson Associates, a compensation consulting firm. Total industry pay would still be below the record levels of 2007, but only a bit.
That is, of course, only the logical outcome of the investment-banks-and-bankers-must-be-protected-at-all-costs approach to the economic meltdown that we have seen from the seamless triumvirate of Hank Paulson and Larry Summers and Timothy Geithner. It tends to breed a certain sense of righteous entitlement. And invulnerability.