Citigroup's plan to increase employee salaries attracted criticism from unions, watchdogs and lawmakers yesterday in an echo of the bonus controversy that engulfed Capitol Hill earlier this year.

The bank, which has received $45bn in government bail-out money, is planning to increase the salaries of some bankers by up to 50 per cent while reducing bonuses.

"They just don't get it," said Chris Dodd, chairman of the Senate banking committee.

The American Federation of State, County and Municipal Employees, the largest US public service employees union, plans to write to Citi's board today, reiterating its call for the resignation of two members of the compensation committee and protesting against the new pay scheme.

"This is exactly the type of non-performance based pay we have been challenging," said Richard Ferlauto of the Afscme.

Citi declined to comment but executives said the new compensation programme would not necessarily result in higher overall pay. They added that the bank had to act to prevent an exodus of traders and bankers.

James Reda, managing director of James F Reda & Associates, a compensation consultant, said: "Citi's problem is that they have to pay market rates or else traders and bankers are going to leave."

Citi executives said compensation matters had been discussed with the government.

The arbiter of the package will be Kenneth Feinberg, newly installed special master on pay. Citi and six other companies receiving "exceptional government assistance" have 60 days to send Mr Feinberg compensation plans for their top 25 earners and 120 days for the next 75 employees. Mr Feinberg has 60 days to review the plans.

In spite of the criticism, the broad aim of Citi's plan seems to accord with the administration's directives on executive compensation - that short-term bonuses should fall as a proportion of the overall package.

At a congressional hearing, Herb Allison, new head of the $700bn troubled asset relief programme, said it was "too early" to determine whether the Treasury would seek power to pay out Tarp money into next year.

Asked how he planned to deal with the government's warrants for banks' common stock, he said: "We will soon be publishing on our website our approach to valuing the warrants."