Pay limits likely to hurt most at Citi, BankAm

Written by Bloomberg | Updated: Sep 30 2009, 05:30am hrs
Citigroup Inc,Bank of America Corp and smaller banks struggling to attract talent and regain ground on stronger peers may face a new obstacle resulting from the global push to rein in executive pay.

Group of 20 standards barring bonus guarantees for more than one year and requiring deferred pay for top executives would take recruitment tools away from banks already burdened by diminished share prices and damaged reputations, some recruiters said. The plan adopted at last weeks G-20 summit may benefit Goldman Sachs Group Inc.,JPMorgan Chase & Co and Morgan Stanley, which have been quicker to repay government aid.

Limiting guarantees to one year could hurt banks like Citigroup and Bank of America by putting them at another disadvantage in hiring, said Colleen Westbrook, a partner with Morrison Cohen LLP in New York and a former counsel at the Federal Reserve Bank of New York.

Bank of America, the biggest US bank by assets, and Citigroup, the third largest, are already under compensation constraints because they havent repaid the $45 billion each got from the US Troubled Asset Relief Programme. They are among seven firms required to submit compensation plans for their 100 highest-paid employees to the Obama administrations special master, Kenneth Feinberg, who may rule on them next month.

Citigroup hasnt given any multiyear contracts worldwide since January in its institutional clients group, said Alexander Samuelson, a company spokesperson.

He said the firm has still been able to hire senior people from firms including New York-based rivals Morgan Stanley, JPMorgan and Goldman Sachs. We are focused on paying competitively in a way that aligns associate, shareholder and taxpayer interests, said Scott Silvestri, a spokesperson for Charlotte, North Carolina- based Bank of America.

Spokesperson for JPMorgan and Morgan Stanley declined to comment. Ed Canaday, a spokesman for Goldman Sachs in New York, said the firm has never given multiyear guaranteed bonuses and we do not think theyre appropriate.

The G-20 leaders, including US President Barack Obama, UK Prime Minister Gordon Brown and Japanese Prime Minister Yukio Hatoyama, at last weeks summit agreed on a plan to better align economic policies and build banks capital buffers. They also vowed to keep stimulus measures in place until growth takes root and to narrow disparities in trade and savings.

The pay standards designed by the Financial Stability Board, a group of regulators led by Bank of Italy Governor Mario Draghi, would require senior executives and others with a material impact on a firms risk-taking, including traders, to have a substantial part of their pay tied to individual, unit and company performance. Some of that compensation, such as 40 to 60%, couldnt be paid out for at least three years.