Nov. 28 (Bloomberg) -- Citigroup Inc. Chairman Win Bischoff said changing bankers’ pay to include more stock and longer-term awards will fail to stop the industry racking up losses.

“By itself, more share and retention-based compensation is not the magic bullet because it certainly didn’t stop us from running up very large losses,” Bischoff, 67, said at a Swiss- American Chamber of Commerce event in Zurich today.

Citigroup’s senior managers get about half their total compensation in shares and are prohibited from selling more than 25 percent of the stock awarded, he said. The U.S. government will also have a say over pay at Citigroup after it agreed to give the New York-based bank a $20 billion cash injection.

“You here in Switzerland, and particularly our friends at UBS, have done a lot of good work in this area,” Bischoff said. “However, it’s not the only answer.”

UBS AG, the recipient of a $59.2 billion aid package from the Swiss government, last week announced a pay system that will allow the bank to claw back parts of bonuses allocated to senior managers in the years after the award and lengthen the vesting period for share-based compensation to three years.

Bischoff called for common accounting principles across borders, and broader, more powerful mandates for financial regulators. He also said that two consecutive quarters of profits without any major writedowns at the world’s major financial institutions would be enough to restore confidence.

Governments taking “small” stakes in financial companies in this time of uncertainty and market volatility “is not such a bad thing, even if that comes with somewhat more demands in relation to compensation,” Bischoff said. Boosting government debt is “the best solution to limit the fallout on the real economy,” he added.

Lehman, Merrill

The U.S. government erred in allowing Lehman Brothers Holdings Inc. to collapse, he added. Lehman filed for bankruptcy on Sept. 15 after takeover talks with Barclays Plc and Bank of America Corp. collapsed, and the government didn’t provide funds. The same day, Bank of America, the biggest U.S. consumer bank, agreed to acquire Merrill Lynch & Co., which was in danger of becoming the next subprime casualty after Lehman.

“Some of us at the time thought that as long as Merrill Lynch was OK, it will be OK,” he said. “I was in the former category; I thought it might be all right. In retrospect, it was not the right decision.”

To contact the reporters on this story: Elena Logutenkova in Zurich at elogutenkova@bloomberg.net

Last Updated: November 28, 2008 10:53 EST