Shareholders reject Citigroup's CEO pay
In a vote that was nothing short of stunning, a majority of Citigroup shareholders rejected the 2011 pay package of CEO Vikram Pandit, which included a $1.67 million salary, compared with a token $1 in 2009 and 2010.
The 2011 package also included a $5.3 million cash bonus and stock options valued at $7.8 million. The 2011 package was separate from a retention package valued at $40 million. The board justified the pay by arguing that Pandit returned the bank to profitability. But howls from critics were heard almost immediately. They were incensed that he would be so richly rewarded while shareholders were so poorly treated. The stock has remained mired below book value, though it has staged an impressive rally in 2011.
The fact that the bank failed the 2011 Federal Reserve stress tests only adds fuel to the critics' fire. We noted previously that part of the justification for the rich pay package involved a per-group switch that did not go unnoticed. If you thought the board was skating on thin ice, you were right. The cracks were felt at the bank's annual meeting, where only 45 percent of shareholders approved the plan.
Such a high negative percentage is extremely rare in the banking industry. Indeed, we've noted that the still-new say-on-pay usually generates a meager response. If shareholder-critics can generate no votes in the 10 to 20 percent range, they usually claim victory. The surprising Citigroup vote reflects some deep-seated anger that the bank underestimated in the wake of its decent first-quarter earnings and recent stock run.
To be sure, the vote is non-binding. But Charles Elson, director of the John L. Weinberg Center for Corporate Governance, tells Fortune that there were more than two dozen votes last year to reject executive pay and that nearly all of them resulted in the companies reducing pay. In some cases, shareholders have sued. "Citi would be foolish to ignore the vote," he was quoted. "Though I think is more about a broader shareholder dissatisfaction with how the company is being run." Wall Street isn't known to be overly sensitive to shareholders, so we may see the board dig in. Though Pandit's pay was on the high side, other banks have richly their CEOs. These results of the Citigroup vote will no doubt be discussed in full.-Jim