Citi gets smart

I wonder when banks got out of the business of making loans, and go into everything else. I also wonder, why bankers are so fee crazy that they charge themselves. I guess it is a way to scratch each others' back.

Citogroupis planning to overhaul its bonus system for hundreds of top managers in an effort to increase co-operation and minimise in-fighting among the disparate parts of the sprawling financial services conglomerate.

The move is part of an ambitious plan by Vikram Pandit, chief executive, to restore Citi’s battered fortunes by harnessing synergies between its investment banking, commercial banking and wealth management divisions.

Citi is the latest Wall Street bank to rethink its bonus system in the wake of the credit crunch. However, while firms such as Merrill Lynch are trying to reduce incentives for bankers to take short-term risks and outsized bets, Citi’s efforts are mainly aimed at getting the most out of its huge and diverse business.

Since taking over from Chuck Prince in December, Mr Pandit has rebuffed calls to break up Citi and vowed to eliminate barriers between the company’s businesses to fully exploit its “universal banking” model.

“The new compensation plan is absolutely crucial to put teeth behind Vikram Pandit’s strategy,” a Citi executive said. “We have to put a premium on partnership-like behaviour.”

People close to the situation said Mr Pandit wanted to change the way bonuses were calculated to reward co-operation across different divisions and the performance of the company as a whole.

At present, bonuses at Citi, like those at most other banks, are largely dependent on the results of a manager’s division and individual performance.

People familiar with the matter said the ultimate goal was to link bonuses of senior managers and junior employees to Citi’s overall performance. However, they added that the first stage was likely to involve skewing bonuses to take into account how much shared business each manager generated.

Citi employees already get paid for referrals, when, for example, a wealth management adviser helps a client open a credit card or a checking account. However, Citi insiders say those sums are modest.

A change to Citi’s compensation structure could face internal resistance. Many senior managers may object to having their pay tied to businesses outside their control, especially when they are as volatile and cyclical as investment banking.

However, Mr Pandit has told senior colleagues he wants a new system in place by the end of the year, when annual bonuses are decided. John Donnelly, head of human resources, has been asked to draft detailed plans during the next few weeks.