U.S. & World

NEW YORK (AP) ― Citigroup Inc. is increasing the base salaries of many of its employees — reportedly by as much as 50 percent for some workers — as it restructures its compensation program amid new restrictions on bonus payments.

The higher salaries are not the equivalent of annual raises because bonuses are being lowered, according to a person familiar with the matter who requested anonymity because the plans have not been made public.

Citi faces restrictions on bonuses as part of a new government compensation oversight plan because the bank received bailout funds from the Treasury Department. The Treasury Department had no immediate comment about Citi's change in compensation plans.

By shifting the mix in compensation packages, the change could allow Citi to pay most employees as much as they received in 2008 while adhering to bonus caps.

Not all employees will be affected equally by the change in compensation, according to the person. Only those who receive a base salary and bonus could see an adjustment. Even then, the adjustments will vary based on an employee's position and current breakdown of pay between base salary and bonus.

"Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment," Citi said in a statement Wednesday. "Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation."

A New York Times report published Wednesday said some employees salaries will rise by as much as 50 percent because of the change in compensation structure.

The New York-based bank has been among the hardest hit by the credit crisis and recession. Citi has reported six straight quarterly losses totaling nearly $30 billion. But, it would have posted a profit in the first quarter had it not been for dividend payments on preferred stock. In recent months, the bank has been reducing staff and selling assets in an attempt to streamline operations and return to profitability.

The bank has received $45 billion in loans from the government. A portion of those funds will soon be converted to common stock, giving the government a 34 percent stake in the bank.

Bonuses awarded to employees at financial firms that received government bailouts have come under heavy scrutiny in recent months. Earlier this year, American International Group Inc. was sharply criticized for bonuses it paid to employees at one of its most troubled divisions. AIG was rescued from the brink of collapse by the government last fall.

The Obama administration has blamed compensation plans for encouraging excessive risk-taking that pushed the financial services sector into chaos last year.

The administration recently named lawyer Kenneth Feinberg a "special master" to oversee compensation packages awarded to the seven companies that have received the most government support, including Citigroup. Feinberg can reject pay plans he deems excessive and review compensation for the top 100 salaried employees at those companies.

The 100 highest paid employees at Citi will not be part of the bank's revised compensation program because of the government's additional review over that group's pay.

Charlotte, N.C.-based Bank of America Corp., which received $45 billion in government support, is among those facing additional scrutiny about bonuses and executive compensation.

"Bank of America looks forward to working cooperatively with Mr. Feinberg to ensure we comply with all applicable compensation regulation outlines by the Treasury," said Bank of America spokesman Scott Silvestri.

Last month, during a speech in London, Bank of America's CEO, Ken Lewis, said the financial industry must make reforms in compensation, including changes to performance-based pay that rewards long-term company growth and punishes inappropriate risk taking.

Ensuring compensation for employees by increasing salaries could be a move banks facing government restrictions take to avoid losing workers to competitors. Some banks that received government loans during the mushrooming credit crisis last fall have already paid back their debt, and are no longer subject to compensation oversight. That could allow them to offer lucrative deals to entice employees away from banks where restrictions are still in place.

Citi has seen some defections from its ranks in recent months. The latest was the departure of Ajay Banga, CEO of its Asia Pacific division, who left to take a position at MasterCard Inc.

Shares of Citigroup rose 4 cents to $3.05 in midday trading. Bank of America shares rose 36 cents, or 2.9 percent, to $12.59.

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AP Business Writer Ieva M. Augstums in Charlotte, N.C. contributed to this report.

(© 2009 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)

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