Wednesday, June 24, 2009

Citigroup Raises Pay as Unemployment Rises

It is a tired old argument in the financial service sector, raising salaries “to retain the best talent.” Today the New York Times reports Citigroup Has a Plan to Fatten Salaries .

It goes on to note “industrywide, total compensation is expected to rise 20 to 30 percent this year, approximately to the levels of 2005, before the crisis, according to Johnson Associates, a compensation consulting firm.” It was during that time the instruments of financial destruction began to flourish, so why not roll back the clock to then?

Having run a business in both good times and bad times, we all benefited from the former and we all had to tighten our belts during the latter. Why should the financial services industry be except from the financial laws of gravity and why does the Board of Directors approve such policies while their shareholders suffer and their businesses take government funds? Bank of America and Morgan Stanley are also raising base salaries. Guess they too are concerned about “retaining the best talent.” All of this as unemployment rises -- where does this logic end? It almost seems like a back door form of price-fixing, as isn’t it inevitable that the expense of these coordinated salary increases find their way into the cost of financial products?

Juxtapose that to an article in the same edition of the Times: Despite Recession, High Demand for Skilled Labor. Some jobs such as registered nurses, geological engineers, and welders are going unfilled, even during the recession. These are jobs that actually produce something and are critical to our society. One might as well work in the financial services industry where compensation is immune to supply and demand.