March 17 (Reuters) - Anticipating restrictions on bonuses, officials at Citigroup Inc (C.N) and Morgan Stanley (MS.N) 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.
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.N), 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 officials have considered designating which 25 executives will be subject to bonus limits, the paper said, citing people familiar with the discussions.
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 paper.
A Citigroup spokesman in Hong Kong declined to comment on the report when contacted by Reuters.
Wall Street compensation has come under intense scrutiny, especially at banks that have received taxpayer money from TARP.
Citigroup has received $45 billion of TARP money. Morgan Stanley has received $10 billion.
Morgan Stanley could not immediately be reached for comment by Reuters.
The bonus forms a large part of salaries of traders and bankers on Wall Street, the paper said.
Wells Fargo & Co (WFC.N), which took $25 billion of capital last year under TARP, disclosed last week that it increased the base salaries of CEO John Stumpf and two other executives, the paper said.
Raising base pay at J.P. Morgan Chase & Co (JPM.N) isn't being discussed, the paper said, citing people familiar with the matter. (Reporting by S. John Tilak, Ajay Kamalakaran in Bangalore; Editing by Lincoln Feast)