Citigroup’s Pandit says regulators should focus on pay structure, not dollar amounts
Citigroup Chief Executive Vikram Pandit spent an hour today with students at Washington University’s Olin School of Business, fielding questions on everything from bankers’ pay to the MBA job market.
Regarding the recent actions of federal pay czar Kenneth Feinberg, who recently slashed some bankers’ pay by 50 percent, Pandit said regulators should focus on incentives, not dollar amounts. Incentives were misaligned throughout the banking system, and not just on Wall Street, he said:
The person who originated the mortgage was not the person who wound up holding the ultimate risk. … That’s called moral hazard. … There clearly were incentive issues invollved in the entire food chain starting with mortgage origination.
That’s different when you come to a large financial services company where most of the people got paid in the stock of the company. … There are compensation structures that mitigate moral hazard and those that increase moral hazard. The last time the Street got it right was when the firms were smaller and they were partnerships. Something got missed when we translated partnership compensation structuers into public-company structures.
Pandit said Citigroup and other big banks are looking at bonus clawback provisions, where a banker would have to pay back part of a bonus based on a deal that goes sour, and at pay plans that are based more on stock than cash. Such structural issues are an appropriate issue for regulators, too, he added:
The numbers have to be determined by the marketplace. Get the structure right and then let the marketplace determine the right answers.
For students concerned about the job outlook in financial services, Pandit quipped that “It’s a good time to be in school right now.” He went on to reassure them that the financial industry will continue to grow globally, even if it shrinks for a time in the United States.
I also sat down with Pandit for about 10 minutes to talk about Citigroup’s restructuring and about its mortgage division, which is based in O’Fallon, Mo. Watch for more information here and on my Twitter page.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
The main problem is the pay. Millions of Americans hold jobs that are just as important if not more important than sales positions. Commission needs to reduced, and salary needs to increased. These huge bonuses, and large commission payouts are more than the market should pay. Those in positions of trust are more or less raiding their employers all over the market place. Good sales people are vital but a firm needs to offer a product to get sales, no valued product no sales. If a firm has a product that moves sales people though valued can be easily replaced and the market is full of those wanting to make good money.