Shareholders slap Citi's wrist over pay

Investors have voted against the Citigroup pay scheme under which boss Vikram Pandit was paid $15m last year.

by Andrew Saunders
Last Updated: 10 May 2012
Over half of shareholders (55%) voted against the package, which also covered other senior directors’ pay. The giant US bank has thus earned the unwelcome tag of being the first such Wall Street institution to suffer a shareholder revolt at the hands of the Dodd-Frank ‘Say on pay’ rules. Not something that is likely to be appearing in its corporate video any time soon.

The vote is however only advisory and won’t in itself force a change of policy, although it is a pretty major embarrassment for Pandit and the rest of the board. The timing could also hardly be worse, as last month the Federal Reserve refused to allow Citigroup to pay a larger dividend saying the bank was not yet sufficiently financially robust to do so. There may well be a score-settling element to this latest setback.

Pandit of course is the boss who famously took a mere $1 salary in 2010 as public penance for the bank’s disastrous post-crash performance. Between 2007 when he took over and the end of last year, the shareprice collapsed by 90%, and the bank had to be rescued by a $45bn government bail out in 2008.

If he was hoping that this gesture would be enough to ward off further pay trouble he must be feeling pretty disappointed today. Many analysts and large investors seem to believe that it is high time something was done about Citi’s reward programme, whose profit targets are seen as encouraging rewards for failure by being too lax. Shareholders are also not keen on the way that apparently empirical measures like the quality of talent management and culture are also used to trigger bonus payments.

Of course the wider question is whether the vote make much impression elsewhere on Wall Street, or in the corporate world in general? MT remains sceptical on that subject - executive pay maybe a hot topic again but shareholders cannot be relied upon to police it effectively, as Simon Caulkin’s in-depth report from the April issue of MT explains.

Outgoing Citigroup chairman Richard Parsons described the result of the vote as ‘serious’ and said that directors would meet investors to discuss their objections. What the result of those meetings will be remains to be seen, although we’re guessing that some fairly unvarnished words may be used. There may be an opening for anyone who can make up a few Citigroup branded tin helmets, sharpish.

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