citibank-atm_tbi.jpgCitigroup is barely scraping by on government aid, yet it’s management is planning to raise base pay by as much as 50 percent this year to offset smaller bonuses.

The New York Times reports:

For months, Citigroup executives have sought guidance from the Treasury Department about how to alter compensation. But after reviewing the new rules, the bank determined it did not need Mr. Feinberg or other government officials to sign off on pay for the rank and file. While Mr. Feinberg can request information on the pay polices at financial companies that have received two federal bailouts, the companies can reject his guidance.

Citigroup executives are so eager to keep employees from fleeing, that in some cases, they are offering them guaranteed pay contracts. Managers began notifying bank employees of the proposed changes this week. They could take effect shortly.

Let’s break this down in the simplest terms: this is a disaster. Without taxpayer guarantees and funding, Citigroup would be unable to give its employees higher base salaries. The best employees would leave for other firms. This market process would further diminish Citi and enhance its better managed competitors. Everyone, except Citi shareholders and some of its senior management, would be better off. Instead, taxpayer funds are being used to block this market process, trapping talent inside a failed firm and rewarding management’s worst mistakes.