New York: Citigroup Inc Chief Executive Vikram Pandit got a $1,749,999 raise on Friday. Pandit pledged in 2009 to receive an annual salary of $1 until the struggling Citigroup returned to sustained profitability.
On Friday afternoon, three days after the bank reported its first full year-profit since 2007, the board raised his salary to an annual base of $1.75 million.
That amount pales in comparison to some of the compensation awarded to other high-profile Wall Street executives James Gorman and John Thain on Friday. Gorman, CEO of Morgan Stanley, and Thain, CEO of CIT Group Inc were awarded incentive compensation on Friday, while Citigroup did not say what additional bonuses and incentives Pandit would be eligible for.
His pay raise will be effective immediately, Citigroup's board said in a regulatory filing. It said in September that it intended to raise his pay in 2011, without disclosing the amount.
Massive losses during the financial crisis forced Citigroup to take $45 billion in US government bailout funds. Pandit, who was named CEO in late 2007, presided over two full years of losses before the bank reported its fourth consecutive quarterly profit on Tuesday.
The US government also sold the last of its Citigroup stock in December, helping the bank shed its status as a government ward.
"The worst is over for Citigroup - certainly there was a point in which people thought it would have to be broken up," said Richard Lipstein, a managing director at Boyden Global Executive Search, which consults for financial companies.
"The days of the $1-a-year Wall Street CEO are over," he said.
Pandit's new base salary is about 35 times the US median household income, which was about $50,000 in 2009.
Even by the standards of post-financial crisis Wall Street CEOs, Pandit has rebounded nicely. Citigroup will pay him almost twice what larger rival Bank of America Corp paid CEO Brian Moynihan as a base salary in 2010.
Given that Pandit has received only a nominal salary for the last two years, it makes sense to reward him for making his bank profitable again, said Yaniv Grinstein, professor of finance at Cornell University's Johnson School of Management.
But the trick in compensation is keeping employees motivated even after they received outsized pay.
"You'd like to tell people that if they do well, they'll get high compensation for it, and when they do well and get high compensation, then you ask, 'how will we keep him motivated for another round,'" Grinstein said.
Banks often try to keep employees motivated by deferring pay - an employee who has to wait five years before collecting their entire bonus has an incentive to keep working hard.
Morgan Stanley for example said it deferred an average of 60 per cent of employees' pay in 2010, up from 40 per cent in 2009. For the most senior employees, more than 80 per cent was deferred on average.
Pandit's new base is much smaller than the potential $7.4 million incentives package Morgan Stanley gave CEO James Gorman on Friday. The investment bank said in a regulatory filing Gorman had been awarded restricted stock units worth $3.9 million as of the close of Friday's markets, and stock options worth about $3.5 million.
In 2010, Gorman received awards valued at $8.1 million.
Also on Friday, CIT Group awarded several millions of dollars worth of incentives to its CEO, former Merrill Lynch CEO John Thain.
Thain, who sold Merrill to Bank of America in 2008 and was fired a few weeks later, will receive an annual base salary of $500,000 in 2011, the same as in 2010. But he will also receive a one-time grant of $5.5 million in restricted stock units, and he will be eligible for a discretionary cash incentive award based on 2011 performance with a target value of $1.5 million, CIT said in a regulatory filing.
Pandit has sold assets, cut staff and tried to focus Citigroup on its main businesses, including investment banking and retail banking for affluent customers globally.
Chairman Richard Parsons said in the filing on Friday that Pandit "has worked tirelessly to put Citi back on the right track, spearheading a restructuring that has returned the company to profitability and positioning the company for future growth. In light of these highly positive accomplishments, the base salary established for Vikram is merited."
Citigroup shares closed up 1.9 per cent on Friday at $4.89.