Citigroup, which received a $45 billion (£27 billion) bailout from the US Government, will raise employees’ pay by up to 50 per cent in an effort to hang on to key staff.

The bank, which has an investment and commercial banking operation in London, is the latest example of a state-controlled bank using some of its funds to increase bankers’ pay.

The rises will apply across the bank, including in London. They will vary, with star employees in investment banking and trading in line for the largest increases.

Citigroup will raise employees’ monthly salaries by taking the money out of its end-of-year bonus pool.

The move should be popular with staff, as they will get the money up front and will not have to wait to see how the bank has fared by the end of the year.

However, most of their pay will still be in the form of end-of-year bonus, as it traditional at banks.

A Citigroup spokesman said: “Citi continues to examine ways to ensure its employee compensation practices are competitive in this very challenging market environment.

"Any salary adjustments are not intended to increase total annual compensation; rather, to adjust the balance between fixed and variable compensation."

The US Administration has appointed Kenneth Feinberg, a Washington lawyer, as its “special master” to review compensation at companies that received government funds, including Citigroup.

Mr Feinberg will have the authority to regulate compensation for 175 executives at seven companies that received “exceptional” government help.

He steps into the political maelstrom that erupted after disclosures that firms such as the New York-based Merrill Lynch, blamed for fuelling the financial crisis, paid workers multimillion-dollar bonuses.

Among the financiers Mr Feinberg will set the salary for is Vikram Pandit, the head of Citigroup, whose total pay came to $38 million last year.

There is no salary cap at the seven companies, but the plan offers an incentive for companies to adopt a voluntary cap.

If they limit executive pay to $500,000, Mr Feinberg’s approval will be automatic.

In the UK, Royal Bank of Scotland, which is 70 per cent-owned by the Government, triggered anger among politicians and unions this week by saying that it had agreed a pay deal for Stephen Hester, its chief executive, worth up to £9.7 million for 2009.

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