As Bank of America and Citigroup struggle against a tide of negative perceptions, experts say the banks are relying on large pay packages to keep or recruit top talent at firms with better reputations like JPMorgan and Goldman Sachs, both of which have returned the Troubled Asset Relief Program funds provided to them by the federal government. Bank of America and Citi, in contrast, are viewed as having weaker balance sheets and they continue to hold on to tens of billions in TARP funds.
"We have a very quickly emerging two-tier system, with Goldman and JPMorgan at the top, and eveyone else beneath them," said Sydney Finkelstein, a professor of management at the Tuck School of Business at Dartmouth College. "That enables Goldman and JPMorgan to cherry pick some great talent. ... Anyone who has a big investment in trading and investment banking has no choice but to ante up to stay in the game."
A report by New York State Attorney General Andrew Cuomo earlier this month spurred fresh furor over compensation excesses. Cuomo's report, which didn't name names, found that 28 Bank of America employees, 149 Merrill Lynch employees and 124 Citigroup employees received compensation of more than $3 million while the banks floundered in 2008.
According to the Wall Street Journal, bank executives earning tens of millions included Merrill Lynch's Andrea Orcel and Thomas Montag, who received cash and stock packages of $33.8 million and $39.4 million, respectively. Both now work for Bank of America.
Orcel and Montag's reported 2008 compensation actually dwarfed that of Bank of America CEO Ken Lewis, who received a total of just over $9 million, according to Equilar, Inc., an information services firm specializing in executive compensation.
Lewis' pay was also several times smaller than that of his Citigroup peer, CEO Vikram Pandit, who received $38.2 million in 2008, according to Equilar.
Will last year's Citi and Bank of America top earners be due similar pay packages this year? That remains unclear -- Bank of America declined to comment on compensation for any specific employees, as did Citigroup.
"I can tell you that we are taking the steps necessary to attract and retain key talent and respond to competitive pressures," Bank of America spokeswoman Kelly Sapp said in an e-mail.
The amount that Citi and Bank of America set aside in compensation thus far this year provides only limited clues. Citi has set aside substantially less, $12.8 billion, than it did by this time last year, when it accrued $18.3 billion.
Bank of America's total -- $16.6 billion -- is more consistent with last year, when the bank and Merrill Lynch, combined, accrued $16.7 billion, according to Equilar.
"I think on an overall basis, these companies are being more careful about how they're paying their employees," said Equilar associate research manager, David Sasaki.
But the fact that banks are setting aside less money doesn't mean that individual pay will shrink. Sasaki noted that both banks have had layoffs, meaning that fewer people will be drawing from the compensation pool.
"There's certainly still large compensation packages out there," he said.