Doin' the compensation "two-step"......bad time to be a rich guy!!

Anticipating restrictions on bonuses, officials at Citigroup and Morgan Stanley [MS  22.76    -0.28  (-1.22%)   ] are exploring ways to sidestep tough new federal caps on compensation, the Wall Street Journal said. Executives at these banks and other financial institutions that received government aid are discussing increasing base salaries for some executives and other top-producing employees, the paper said, citing people familiar with the situation.

Sharon Lorimer

The discussions are at an early stage, partly because the government has not yet issued specific rules on the bonus payments that will be allowed at companies that received aid under the government's Troubled Asset Relief Program, the paper said.

The report comes on the heels of widespread outrage that insurer AIG [AIG  0.9239    0.0939  (+11.31%)   ], kept alive on a government bailout of up to $180 billion, was paying its employees bonuses of $165 million.

In February, President Barack Obama set a $500,000 annual cap on pay for top executives at companies receiving taxpayer funds.

Citigroup [C  2.43    0.10  (+4.29%)   ] officials have considered designating which 25 executives will be subject to bonus limits, the paper said, citing people familiar with the discussions.

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In that scenario, the new rules might not apply to lower-ranking yet still highly lucrative traders and investment bankers, the people told the paper.

"We will comply with the restrictions, in addition to the substantial changes we have already made to our compensation structure," a Citigroup spokeswoman told the p