Revamping Citi's Bonus System
Posted on Letter from London: July 7, 2008 7:19 PM
Vikram Pandit is a brave man. He stepped up to head Citigroup when others flinched at the thought. Then he set about streamlining and rebuilding Citi, which had been laid waste by the credit crunch and under the regime of his predecessor, Charles Prince.
With steely resolve, Pandit wrote down billions of dollars, closed scores of branches, jettisoned parts of the business, slashed jobs and cut dividends. He didn't stop there. Next, he tapped sovereign wealth funds in Asia and the Gulf for nearly $30 billion, set up a new risk-management team, and cut the bank's exposure to the sub-prime market.
Pandit's latest initiative may be his boldest yet. His plan to overhaul Citi's bonus system is an attempt to move the bank from a highly individualistic to a team culture. It is intended to cut down in-fighting among senior executives and promote co-operation across its investment banking, commercial banking, and wealth management divisions.
While other banks have reviewed their rewards systems in the wake of the credit crunch, arguably no one has gone as far as to base bonuses on the cooperation and performance of the company as a whole. Indeed, in an industry where rewards are inextricably linked to individualism and competition, this is little short of declaring war. Pandit Is said to want the system in place in time for next year's bonuses, which is bound to stir up a hornet's nest of resistance among senior Citi executives.
Few bankers want to see their bonuses tied to businesses they cannot control, especially given the current volatile state of the industry. One online commentator in the New York Times recently wrote: "It will create even more innuendos and backstabbing by an already politically charged senior management…this will create a facade of where managers give the outward appearance of cooperation and will end up with hidden agendas and covert operations."
So what is Pandit thinking? Is he on a groundbreaking mission to clean up Citi's culture and make it more equable? Or is this a naïve—or reckless—attempt to change the fundamental nature of the beast? And what will be the effect on Citi in a year's time? A more co-operative and high-performance workplace—or a wilderness of in-fighting and political intrigue?
In my experience of working with bankers, the collaborative, consensus-driven and sensitive manager is a rare creature. Where I have occasionally found them, they have been pressured to meet targets and drive results by bosses who are ruthlessly focused on the numbers. Even the banks that value soft skills and value collaboration are buckling under the current pressure.
Perhaps Pandit is a true visionary who is trying to change Citi's culture for future generations: the checks and balances of team working will certainly curb the excesses of individual greed. But is this workable? Will this do more harm than good, given Citi's current situation? What do you think?