Wednesday, June 24, 2009

Wall Street Increases Executive Pay...Big Surprise

If the Obama administration really wants to change how Wall Street executives are compensated, it has its work cut out for it. That much became clear today as Citigroup announced that it intends to raise employees’ base salaries by as much as 50%.

Citigroup has received $45 billion in taxpayer funds. To make the publicity of this even worse for the company, the biggest salary increases are going to investment bankers and traders.

This is sure to spark voter outrage. We’re in a recession where people in most sectors of the economy are losing jobs or taking pay cuts. And they’re not getting any bailouts. They will understandably ask why they’re tax dollars are being used to support lavish investment banker salaries.

Citigroup has said the salaries are necessary to compete successfully with other Wall Street firms. That is undoubtedly true. If executives aren’t being paid a certain amount at Citigroup, they will try to find jobs at Morgan Stanley or Goldman Sachs. And if salaries are precipitously cut industry-wide, good executives might leave Wall Street.

This situation is truly galling. People who made terrible investment decisions that led to the collapse of the global economy are on track to reclaim their bloated salaries at the same time regular, hardworking Americans are suffering. But the prospect of an important Wall Street firm not being able to retain top talent could retard the recovery of an important sector of the American economy.

These are my preliminary thoughts on the salary increases. I’ll have more to say as the situation unfolds.

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