In 1951, Pittsburgh Pirate Ralph Kiner led the National League in home runs, but his team lost 112 games and finished last. In response to Kiner’s request for more money, legendary general manager Branch Rickey said: “We finished last with you; we can finish last without you.”
Where is Branch Rickey when you need him?
Citigroup 2009 Earnings
This morning Citigroup announced that it lost $7.6b in the fourth quarter of 2009 and $1.6b for the full year. The Wall Street Journal pointed out the positives: better than last year’s fourth quarter; narrowing losses in the consumer credit area; greater efficiencies and financial stabilization.
The main stream media seems determined to make poor performance sound better than it is. I guess we don’t want to ruin the self esteem of executives, who are trying really really hard.
What the media fails to point out is that Citigroup has been given every financial advantage. The government has given it TARP funds, participates in its capital structure with a 34% ownership stake, and has permitted the bank to mint money with a zero interest rate policy.
Citigroup Bonuses
Citigroup announced a bonus pool of $24b and the media again has obfuscated the real story. The headline in the Times Online (London) is: “Citigroup Cuts Compensation by 20% as Losses Fall.” Dig into the story a little further and there is virtually no reduction in compensation. Because of layoffs the compensation pool of eligible executives has been reduced by 18%. Thus, the compensation pool is virtually flat year over year. The company has lost $1.6b this year and $29.2b over two years.
The CNBC corporate apologists attempted to justify the bonuses: there was improvement, Citicorp needs to retain executives to remain competitive, and the bonus will be paid in stock. One commentator did point out that the stock was immediately vested, and therefore indistinguishable from a cash bonus.
There was a Different Time
I have written about disconnecting effort and reward. See What Went Wrong? Disconnecting Effort and Reward. Citigroup results have made me think that we have also disconnected results and rewards.
In a different time, I worked for a company that one year paid no bonuses. That year we had poor financial results, but did not lose money. Based on the poor results, the Chairman and CEO engaged in no handwringing, no excuses, no attenuated intellectual justifications nor elaborate proofs. He merely reached the conclusion that poor performance equaled no bonus – amazing in its simplicity. As a result, very few executives voluntarily left the company, the world did not end, we all worked harder, and did better the next year.
Maybe Mr. Pandit, Citigroup CEO, should channel his inner Branch Rickey and eliminate all bonuses for 2009. His reply to whining executives who threaten to quit: “we lost $29.2b with you; we probably could have lost $29.2b without you.”
Branch Rickey applied one other perfect aphorism to a non- producing, disruptive ballplayer:
“It was addition by subtraction.”
Too bad Mr. Rickey is not around to advise Citigroup.
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