Please, sir, may we pay out our bonuses?

posted at 10:08 am on April 29, 2009 by Ed Morrissey

After watching how AIG got torn to shreds in the media and inside the Beltway for paying contractually-obligated retention bonuses to execs, Citigroup has decided to take no chances.  They have asked permission from Treasury to pay their executives in their energy-commodity division bonuses based on their excellent performance thus far.  They want to continue to make a profit and need to keep the talent from finding greener — and less federally-bailed-out — grass elsewhere:

Citigroup Inc., soon to be one-third owned by the U.S. government, is asking the Treasury for permission to pay special bonuses to many key employees, according to people familiar with the matter.

The request comes as Citigroup is grappling with broad government pay restrictions that could break apart its legendary energy-trading unit. People at that unit, Phibro, are threatening to leave because of pay caps tied to the U.S. bailout of Citigroup. Phibro has been the source of hundreds of millions of dollars in profits for the bank, and has paid out hefty compensation, including a roughly $100 million windfall last year for the unit’s leader, Andrew Hall. …

Citigroup is trying to get U.S. approval for special bonuses for many of its employees. In a meeting earlier this month with Treasury Secretary Timothy Geithner, Citigroup CEO Vikram Pandit made the case for the stock-based bonuses. Executives are describing the bonuses as “retention” awards to perk up demoralized employees who the company worries are vulnerable to poaching by rival firms, people familiar with the matter said.

A person familiar with Mr. Geithner’s thinking said the Treasury hadn’t made a decision on whether to allow the bonuses. It is unclear how much Citigroup would pay out in bonuses if the government approved the move. A Citigroup spokesman declined to comment on details of the proposed compensation plans.

On one hand, it would make sense to get approval from the shareholders.  After all, it’s their money … or I mean it’s our money, since the US government will shortly have a 36% stake in common stock. Asking the stockholders for permission to make large payouts seems almost reasonable, except of course that the government shouldn’t be owning any of Citi or any other private firm.

Does anyone else find this disturbing or embarrassing, or both?  A private company feels it has to ask permission from Washington DC to pay retention bonuses to executives in a profitable business unit.  Citi put itself in this position by drinking the bailout Kool-Aid, of course, but it shouldn’t have been available to drink in the first place.

As far as having executives poached, I’d call that a free-market correction at this point.  Citi chose to take government funds and let Obama in their boardroom.  One consequence of that is that Obama apparently gets to make their compensation decisions, which puts them at a market disadvantage.  That should serve as a warning to other firms looking to suck off the taxpayer teat.

The Obama administration has insisted that all of these, er, investments won’t push them into running the businesses.  Well, here’s their first opportunity to make that clear.  After the AIG bonuses blew up in their faces when Chris Dodd and Tim Geithner had to admit they both knew about them and protected them, my guess is that Citi’s going to hear, “More GRUEL?!?” rather than “The law, sir, is a ass!”


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I’m sure glad I refinanced out of Citi. They are on the Amtrak/GM path.

Vashta.Nerada on April 29, 2009 at 10:09 AM

heh….sure as long as they kick back 10% to ACORN….

“cut me in or cut it out”

sven10077 on April 29, 2009 at 10:10 AM

And people are offended when BHO is called a fascist.

jgapinoy on April 29, 2009 at 10:12 AM

Related – the 4 biggest Chrysler secured creditors, all TARP recipients, agree to a 71% haircut on Chrysler’s secured debt. Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley agreed to terms with the Treasury Department that they and the other 42 other secured creditors of Chrysler accept $2 billion in cash to retire Chrysler’s $6.9 billion secured debt.

Of course, the other 42 also need to agree to make it happen, and there is an unknown number that also agreed.

steveegg on April 29, 2009 at 10:12 AM

Gaia…how degrading is it when a private company has to ask a moron like Geithner for permission to do anything? It’s like me asking permission from my dog to buy some new tools.

Bishop on April 29, 2009 at 10:13 AM

A person familiar with Mr. Geithner’s thinking said the Treasury hadn’t made a decision on whether to allow the bonuses.

Typical. Don’t worry, he’ll decide to pay them. And then decide not to, a day later.

hawksruleva on April 29, 2009 at 10:13 AM

Does this not bother anyone with more than half a brain?

Private businesses, the backbone of this Nation, grovelling with hat in hand, obsequiously petionning government to determine pay and compensation that have already been legally enacted under contract law?

For t hose other businesses and entrepreneurs out there, to include the many HotAir readers…you might want to give the government a call or fax them before you decide to raise the salary or wages of any of your employees. This is a trend in the making, government telling you how to run your business. And not a good trend at all.

coldwarrior on April 29, 2009 at 10:16 AM

…accept $2 billion in cash to retire Chrysler’s $6.9 billion secured debt.
Of course, the other 42 also need to agree to make it happen, and there is an unknown number that also agreed.

steveegg on April 29, 2009 at 10:12 AM

So, they figure 30 cents on the dollar is the best they can get? At least it is in cash, not equity. Hopefully the other debt holders have more sense (or less fear).

Vashta.Nerada on April 29, 2009 at 10:18 AM

Dick Morris was on F&F this morning he brought up the Mussolini model, Corporate Socialism. This is what it looks like.

Dr Evil on April 29, 2009 at 10:20 AM

They aren’t asking permission, they’re offloading risk.

If Treasury gives permissin they get the blame for giving the bonuses, if they refuse permission and all the profit-producing staff leave, Treasury gets the blame for that.

It’s a very shrewd move.

cyclosarin on April 29, 2009 at 10:21 AM

This is a trend in the making, government telling you how to run your business. And not a good trend at all.

coldwarrior on April 29, 2009 at 10:16 AM

The regulation trend has been going on for decades (e.g., OSHA, EPA, employments rules, etc.). This is just a natural progression.

I feel soooooo much better my government is looking out for me, my business, and my employees.

WashJeff on April 29, 2009 at 10:21 AM

Does anyone else find this disturbing or embarrassing, or both?

Both. Add pathetic and terrifying.

Probably seems terrific to Obama, though, who thinks he’s everybody’s father. And just dandy to Congress, most of whom think they are princes of little fiefdoms.

This bowing and scraping to our government has got to come to an end. And I don’t care how.

Alana on April 29, 2009 at 10:22 AM

What is your bidding, my master?

rightside on April 29, 2009 at 10:23 AM

So, they figure 30 cents on the dollar is the best they can get? At least it is in cash, not equity. Hopefully the other debt holders have more sense (or less fear).

Vashta.Nerada on April 29, 2009 at 10:18 AM

Do note that, unlike the GM bondholder $27 billion in debt for 10% of the company deal, we’re talking about secured debt here. That’s the debt that generally gets paid off first in the event of liquidation.

I don’t recall what Chrysler’s “hard-asset” value is, but I doubt it’s less than 10% of GM’s, which at last check was $30 billion.

steveegg on April 29, 2009 at 10:24 AM

I have no love for Citi, then again they have no love for me either, but the Fed needs a good swift kick in the jaw. Citi should cut the checks and tell Timmy to go deposit himself.

Limerick on April 29, 2009 at 10:25 AM

Who do they ask…Obama still has filled most of the treasury positions?
How degrading has our “free” enterprise become. I am sure many think this is the proper way for a business to act.

right2bright on April 29, 2009 at 10:26 AM

On one hand, it would make sense to get approval from the shareholders. After all, it’s their money … or I mean it’s our money, since the US government will shortly have a 36% stake in common stock. Asking the stockholders for permission to make large payouts seems almost reasonable, except of course that the government shouldn’t be owning any of Citi or any other private firm.

Want to bet these “pay-outs” go forward with a new name? Something along the lines of “re-investment compensation” or “corporate stability compensation”, but you won’t see the government or Citi call it a BONUS.

Rovin on April 29, 2009 at 10:27 AM

This bowing and scraping to our government has got to come to an end. And I don’t care how.

Alana on April 29, 2009 at 10:22 AM

And the head of our government then goes and bows and scrapes to the king of Saudi Arabia. Well I ain’t gonna bow to any king or emperor or potentate.

rbj on April 29, 2009 at 10:27 AM

The last laugh will be on Obama.
Obama will try like hell to control as much as he can.
In the end he will fail. Market forces are too powerful
even for the feds to try and control.
Look for the best & the brightest to leave and
start competing firms. All that will be left at the
federal managed companies are hacks and wannbees.

izoneguy on April 29, 2009 at 10:29 AM

They sold themselves in to slavery and now have to ask their masters for permission.

Nothing surprising there – that’s the nature of the relationship.

DamnCat on April 29, 2009 at 10:32 AM

cyclosarin on April 29, 2009 at 10:21 AM

I think you’re right, it’s a very smart PR move for them.

Horrible for the free enterprise system, but good for the govt.-entangled company.

cs89 on April 29, 2009 at 10:33 AM

I’ve not seen this reported or mentioned, but I’ve heard from individuals in the industry that their financial company did not have the option of taking or not taking bailout money. One company didn’t want to take the money, but were told they had to. Has anyone else heard this?

behiker on April 29, 2009 at 10:36 AM

What a shame.

Now, everytime I’ll see that CitiField sign at Mets games, I’m only going to think of bailouts.

And where my tax money is going.

*sigh*

JetBoy on April 29, 2009 at 10:39 AM

behiker on April 29, 2009 at 10:36 AM

You heard right. Companies like Wells Fargo, BB&T, Regions bank and others were forced to take the money eventhough they didn’t want or need it. As I posted yesterday they are all paying 5% interest on the TARP money to the govt. That is why most of the ones forced to take the money want to pay it back but the govt will not let them. The govt is so strapped for cash that they need that interest to accrue. FUBAR, total FUBAR!!!

milwife88 on April 29, 2009 at 10:42 AM

I hope the government rejects the payments and I hope the government continues to treat Citi like a redheaded stepchild. It will serve as a warning NOT to go looking for a taxpayer bailout, if you want to run your company. Citi went looking for this to save them from their own managerial decisions; now they have to live with it.

Citi and GM will very likely collapse under governmental stupidity and hopefully will serve as a lesson to other companies with fiscally negligent management.

michaelo on April 29, 2009 at 10:42 AM

They were too big to fail. Now they will be too big to be free. You are right that the talent will move to hedge funds, especially a trading operation like Phibro. There is no real need for them to be tied to a commercial bank that is on its way to becoming a regulated utility.

dedalus on April 29, 2009 at 10:42 AM

When you shake hands with the devil…..

Bevan on April 29, 2009 at 10:45 AM

They were too big to fail. Now they will be too big to be free. You are right that the talent will move to hedge funds, especially a trading operation like Phibro. There is no real need for them to be tied to a commercial bank that is on its way to becoming a regulated utility.

dedalus on April 29, 2009 at 10:42 AM

It’s early, but that’s a Comment of the Day™ nominee.

steveegg on April 29, 2009 at 10:51 AM

And our liberal trolls say, “Yes, this is how business and government should function!”

lorien1973 on April 29, 2009 at 10:53 AM

milwife88 on April 29, 2009 at 10:42 AM

Thanks milwife88… since that is indeed the case, I’m sure that some of the companies who were forced to take bailout money are going to have a lot of undeserved scrutiny and anger directed at them… just read some of the comments on this thread. These are the companies who did things correctly and prepared for times such as this, but now have to be careful about how they continue to run their business because of being watched so closely. I fear that some of the executives and “the brains” behind these will begin to leave in droves due to the scrutiny. The possibility of these very successful companies beginning to fail is much higher now.

behiker on April 29, 2009 at 10:56 AM

Citi’s been in bed with the Democrats for years — Bob Rubin was welcomed with open arms right out of the Clinton Administration — so there’s a certain irony at seeing them cowering at being branded an Enemy of the State by the Obama White House if they hand out bonuses without permission. Kind of like when Larry Summers went from the Clinton Administration to being branded a racist and sexist as President at Harvard. What goes around…

(If you’re going to offer up a massive bank bail-out, then Bank of America should deserve salvation before Citi, since their problem was in large part caused by government, when they were forced to take on the debts of Merrill Lynch last fall. Citi, on the other hand, managed to drown themselves in red ink on their own terms.)

jon1979 on April 29, 2009 at 10:57 AM

Timothy Geithner = Wesley Mouch

BrianA on April 29, 2009 at 11:03 AM

Give me a break. The entire bailout fiasco happened in order to keep Citigroup from failing. Of course it will now do the appropriate window-dressing and ask the government for permission to pay bonuses. And the government will grant it, because Citigroup owns it, not the other way around.

rockmom on April 29, 2009 at 11:07 AM

There’s an old saying that I just made up “Once you let the camel in the tent, you’re gonna have to sleep with it”. If Citi doesn’t want to have to ask, then Citi should return the US Taxpayer dollars plus interest. Then Citi can do what it pleases.

GarandFan on April 29, 2009 at 11:10 AM

I think the key stress test is how much the Citi executives are willing to donate to the DNC.

Star20 on April 29, 2009 at 11:11 AM

Citigroup: #2 financial services campaign contributor in 2008.

Total contributions: $3,475,017

65% to Democrats

Why Citigroup gets whatever the hell it wants, including your tax dollars

rockmom on April 29, 2009 at 11:13 AM

Sorry, here is an even better and more complete link:
Citigroup

$4,374,098 in 2008 cycle; 61% to Democrats (was only 53-44 in 2006 and almost 50-50 in 2004)

Total contributions to Barack Obama: $611,032

Citigroup made a very good strategic investment in this Administration.

rockmom on April 29, 2009 at 11:17 AM

There’s an old saying that I just made up “Once you let the camel in the tent, you’re gonna have to sleep with it”. If Citi doesn’t want to have to ask, then Citi should return the US Taxpayer dollars plus interest. Then Citi can do what it pleases.

GarandFan on April 29, 2009 at 11:10 AM

Nobody is crying for Citi, or BofA for that matter. Lewis could have been a man and told Paulson/Bernanke and their masters to f**k themselves. So maybe he would have lost his job or been threatened. JTP endured it.

The problem is that if we let the Obamites get their hands on the financial system, it’s just another nail in our coffin. They don’t want these two banks to go out of business, because then they couldn’t control how and to whom they lend in the future. Just like Kim in N. Korea needs a bank to do his dirty deals (the one in Macau where he launders his money), the Obama thugs could use a bank, or two, or three.

JiangxiDad on April 29, 2009 at 11:33 AM

They don’t want these two banks to go out of business, because then they couldn’t control how and to whom they lend in the future.
JiangxiDad on April 29, 2009 at 11:33 AM

And they are very large institutions, which makes control all that much easier.
Speaking of capitalism, maybe the natural thing is for these obscene conglomerates to break up. The AIG CEO testified before Congress that the company had too many units and was opaque, not transparent.

I ditched BofA several years ago for a small community bank and was glad they didn’t get bought out last year. To me, buyouts mean higher fees and impersonal service. All for the shareholders, of course.

Giving to leftist causes like ACORN is another reason to ditch those creepy institutions.

People at that unit, Phibro, are threatening to leave because of pay caps tied to the U.S. bailout of Citigroup

If Citi wants to re-open the bonus wound, then more power to ‘em. They made their own bed with the government and liberals aren’t the only ones offended.

Feedie on April 29, 2009 at 12:05 PM

This is only the foot in the door to a new try at wage and price controls throughout the economy. Another fiscal quarter like this one and we will see a swing to Nixon redux. I lived through his wage and price controls. Me thinks the coming edition will be far, far worse.

chemman on April 29, 2009 at 1:09 PM

This is a political landmine for Obama. Either approve the bonuses and risk AIG II, or deny them and watch the most profitable division implode.

Clark1 on April 29, 2009 at 1:18 PM

Heh, this is a real stinker for the Obama admin.

Saying “Yes” would likey ignite another bonus riot. But saying “No” would likely lead to tallent losses and reduced profits. And splitting the difference would likely lead to both.

Enjoy your crap sandwich Mr. Obama.

Onus on April 29, 2009 at 1:23 PM

Since you’ve waxed Dickensian, Ed, which Oliver Twist character would Obama be?

bluelightbrigade on April 29, 2009 at 1:46 PM

I’m a little confused by this topic.

Right now, Senator Spector of Pennsylvania is getting kicked on another thread on this site for simply exercising the behavior of self-preservation. We see this as dishonourable, and I agree that it is. But what makes energy traders in citigroup more honourable for essentially blackmailing citigroup management for bonuses that it shouldn’t be paying? When Senator Spector behaves selfishly, we call it evil. When employees of a failing company behave selfishly, we call it “looking for greener pastures…” This confuses me.

It seems like we shift the definition of performance in order to suit the immediate need of the person using the term. AIG did this also. If the whole business is losing money, then phrases like “belt-tightening”, “cost-cutting”, “We’re all in this together” get thrown around, and raises and bonuses aren’t paid. This is all done in the name of saving the entity as a whole. Yet, when justifying the bonuses at AIG before congress, Ed Liddy suddenly decided that performance meant arranging the deck chairs neatly on the Titanic, and not avoiding the iceberg altogether. “Our people at the Financial Products Unit in Connecticut have done a remarkable job of unwinding our business there, and should therefore receive their contractually obligated bonuses”.

You see, I am a conservative who works for a technology company. I’ve been a conservative for about 20 years. I’ve been told if I work smart, hard, and ethically, then the benefits I’ll accrue will outweight the difficulties I encounter. This I’ve believed. Then my company, under the guise of fiscal discipline in a time of economic crisis has decided to layoff about 25000 employees and cut our pay by about 10% across the board. Now, I’ve been lucky…I still have my job for now, and the fact that the suffering has been applied across the board ameliorates the situation somewhat.

Now, I see the standard bearers for free-market capitalism, the big investment bankers, the risk takers, NOT want to step up and admit their culpability in wrecking the reputation of capitalism. These guys have the gall to demand bonuses amidst the carnage. They’ll turn a generation of young people against them, and socialism will become fashionable and attractive once again, simply because these guys aren’t honorable enough to admit they screwed up. They’ll behave just as selfishly as Arlen Specter and we’ll clap… Makes me sick.

I think conservatives are going to have a difficult time convincing America to trust them with the “car keys” anytime soon. While there is certainly blame to go around, deregulation, and simple greed are preponderantly responsible for this debacle.

mls245q on April 29, 2009 at 2:07 PM

I knew Obama and his ilk would be terrible for America but come on…he’s been in office for 100 days and look at what he’s done to the place.

Like I said before the election- by the end of his four years in office the USA will have been transformed beyond all recognition.

And none of it in a good way.

Jay Mac on April 29, 2009 at 2:15 PM

mls245q on April 29, 2009 at 2:07 PM

Thank you very much for your post.

There are many good companies and the management of Fed-Ex shared the pain by cutting their own pay. That’s called leadership and I was impressed.

Unfortunately, there is a managerial elite, the interchangeable rootless ones, who believe they are exempt from the messes they make. Now, the sewage overflows onto Main Street, and the perps squeal like pigs at having to take responsibility. They act no different than our political class.

The key for conservatives is a recognition that corporate giantism, with its enormous power, is the flip-side of government giantism. Corporatism can benefit from free-market capitalism (as can we all) but the key is in recognizing the difference between the two. Amoral corporatists will squash the free market and abandon the nation that made their success possible, when they can get away with it.

These aren’t new ideas and there is some tentative recognition of the problem in conservative publications.

Axiom No. 5: Don’t trust big business.

Feedie on April 29, 2009 at 4:13 PM