Citi's London bankers & traders are complaining about two tier pay

If you're a senior banker or trader in London now, these are exciting times. The bonus cap has been lifted. Bonus deferrals will be lower, and fewer people in banks will now be classified as material risk-takers governed by compensation regulations. All this should come into effect for the imminent bonus round.

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However, the lifting of the bonus cap is also creating problems. And Citi's Canary Wharf office appears to exemplify the issues.

At Citi, insiders in London say a two tier compensation system has emerged since the lifting of the bonus cap. On one tier are the bank's historic material risk-takers, who are on the old bonus-cap compensation structure.  On the other are the new material risk-takers, who are not.

Citi isn't commenting on its compensation structure, but multiple insiders at the bank tell us that in the old bonus-cap days, Citi paid its senior London bankers very high salaries to mitigate the fact that bonuses were limited to twice fixed pay. Unlike other banks, it didn't pay flexible allowances that varied with performance. Instead, we understand that Citi would recalibrate its very high salaries every year, sometimes adjusting them down, as occurred under a recent BCG strategic review. 

This year, however, insiders say that Citi didn't recalibrate salaries for its senior bankers and traders. Citi's very long-tenured managing directors in London are therefore collecting very high cash salaries with no consideration of performance. Their 2025 bonuses are likely to be small as a result.

By comparison, newly promoted managing directors and directors at Citi are understood to be on lower salaries, which have been rebased to reflect their higher bonus potential in the absence of the bonus cap. In the new world, Citi is paying bonuses of up to 6x salary. 

This should be a fine thing for Citi's new MDs and Ds in regulated roles, except that as we have noted before, most people prefer the certainty of a high cash salary than the uncertainty of a potentially higher discretionary bonus, which is not immediately available. - "Legacy salary-adjusted employees at Citi still receive a minimum of 60-70% of their compensation in cash, while post-change employees can receive only 20-30% in cash, with the remainder deferred," claims one insider. 

Because Citi's new MDs are being paid predominantly through bonuses instead of salaries, insiders say there's also fear that they will bear the brunt of bad years in which the bonus pool is reduced. "They will disproportionately absorb any bonus-pool volatility, whereas historic MRTs receive a large portion of their comp through fixed salary and are immune," says the insider. 

There are also suspicions, however, that many of Citi's historic MDs will receive no bonuses at all this year if they are not favoured by Vis Raghavan. "There's very much an us and them culture," says one insider, referring to Raghavan's various hires from JPMorgan. "The expectation is that Vis will zero a bunch of people in the hope that they will leave."

A spokeswoman for Citi said: “The changes to our discretionary, variable and fixed compensation levels give us the right structure to offer competitive pay, remain highly attractive to the very best talent and encourage behaviours that are in the best interests of our customers, shareholders and the goals of our organisation.”

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