Filed under: Management, Industry, Employees, Citigroup Inc. (C)
Citigroup (NYSE:C) will begin a new bonus plan aimed at getting its senior executives to work for common earnings improvement across the entire company instead of only driving profits within their departments. According to the FT, the new system is “an effort to increase co-operation and minimize in-fighting among the disparate parts of the sprawling financial services conglomerate.”
The set-up has all the hallmarks of failure. Senior investment bankers, money managers, and lending executives break their backs to make their operations successful because they can get multi-million dollar bonuses by doing so. Putting them into a pool where their own efforts are watered down by the bank’s overall performance is a good way to get top talent to leave for greener pastures.
The most wrong-headed part of the thinking behind the program is that it does not account for the fact that banking executives do their ideal out of personal greed. The current system of having each operation in the bank strive for its own ideal results already maximizes overall earnings. The profits from a number of successful divisions within the firm adds up to better financial results for Citi as a whole. Bonuses based on the performance of the the bank as a whole simply makes star executives believed they’re being robbed by being lumped in with the company’s losers.
Bonus programs like this would not prevent problems like mortgage-backed investments. Each and every financial firm on Wall St. thought they were a good way to make money. Changing the Citi compensation system would not have changed that.
Douglas A. McIntyre is an editor at 247wallst.com.
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