In a play to remain competitive and retain top banking talent, FOX Business has learned that Citigroup (C), Bank of America’s (BAC) and Merrill Lynch both plan to increase employee base salaries. At Citi the salary hike could be as much as 50%, to compensate for decreases in bonuses and other incentive based compensation.

"Retaining and attracting the best talent is very important to the success of Citi and all its stakeholders," Citigroup said in a statement, according to Reuters. "Any salary adjustments are not intended to increase total annual compensation, rather to adjust the balance between fixed and variable compensation."

Both Bank of America and Citigroup are hampered in terms of how much bonus compensation they can disburse, thanks to compensation guidelines they have to abide by until they pay back loans from the federal government. 

Citigroup and Bank of America have both accepted $45 billion in loans as part of the government's Troubled Asset Relief Program [TARP], but after a government-imposed stress test, it was determined that neither have sufficient capital to repay Uncle Sam. 

This puts both firms at a disadvantage to banks like Goldman Sachs (GS) and JPMorgan Chase (JPM), which paid back their loans, unleashing them from government pay restrictions.

But increasing salary levels is not necessarily a good thing for Bank of America or Citigroup, some argue. While it complies with the US government’s desire to keep firms away from the incentive pay, which rewards employees for taking on risk, it raises the firms’ fixed labor costs, which could be a problem for the bottom line if the recession lasts longer than anticipated.

“The problem with raising base pay levels is that that’s a fixed cost—so when you raise your fixed cost you’re stuck with that,” said Thomas Flannery, the managing director of executive search firm Boyden’s Pittsburgh office.

Flannery explained that if the recession should worsen, both Citigroup and Bank of America would not be able to adjust employee pay the way they have in the past with bonuses in a tough year.

Another argument against compensation reform suggests that changing the compensation structure would change the type of employees that would be attracted to the positions that are rewarded through incentive pay.

“I think doubling the base pay is a joke in the long run because these people, the base pay had nothing to do with what they do—they get paid a success fee, and most of America doesn’t understand that,” said John Beckstedt, executive director at When2Trade Group, a Chicago-based independent research firm.

Beckstedt argues that individuals who are used to being paid on success, like on completion of a deal, would not be enticed to stay at Citigroup or Merrill Lynch because of an increase in base pay and they would not necessarily be motivated by an increased base.

Couple the arguments against the changes to compensation structure with the public backlash that both firms, who benefited from a taxpayer bailout, are likely to garner for increasing employee compensation, and you have even less incentive for a high-level executive to want to join one of these firms.

Flannery doesn’t think any of the changes made to compensation structure now will stick around for long after the banks pay back TARP.

“I do think it [high-level compensation] is ingrained in the culture of Wall Street, and I’m not a fan of the government intruding into private bus affairs,” Flannery said. “But it was greed that got us here in the first place and unfortunately you can’t legislate against greed—all you can do is penalize it—and that’s what the government is doing.”