Citigroup Inc has become the first Wall Street bank to get a thumbs-down from shareholders over outsized executive pay.
At its annual meeting on Tuesday, 55 percent of the bank’s shareholders voted against the pay packages that had been granted to Citigroup’s top executives, including chief executive Vikram Pandit’s US$15 million for last year and US$10 million retention pay.
The vote is advisory and it will not force the bank to change its pay practices, but it did send a powerful message of discontent to Citi’s leadership.
“This vote is historic,” said Eleanor Bloxham, chief executive of the Value Alliance, a board advisory firm. “None of the Wall Street firms have received this kind of a review yet.”
Wall Street’s massive compensation packages have raised the ire of shareholders for years, especially when they appear to have little relation to the performance of specific executives.
Bonuses became a flash point of public outrage after the 2008 financial meltdown, which was caused in large part by those same Wall Street firms.
Nonetheless, compensation on Wall Street has remained high, even after a taxpayer-funded bailout of the industry and the recession that followed which left one in 10 Americans unemployed.
Until Tuesday, shareholders have not voted in large enough numbers against Wall Street pay packages to make a difference.
Under the Dodd-Frank financial overhaul law, major US companies are required to allow shareholders to have a “say on pay” vote at least every three years. The votes are not binding.
Besides Citi so far this year, only two companies — International Game Technology and Actuant Corp — have failed to muster shareholders’ approval of their pay practices. Last year, 41 companies failed.
For Pandit, the lost vote at the annual meeting comes at a bad time. Last month, the bank’s chief regulator the Federal Reserve dealt Citi a huge setback by barring the company from paying a higher dividend, saying the bank was not financially strong enough. The Fed’s decision came soon after Pandit had been promising to raise dividends.
Pandit’s large pay package for last year and a large retention pay has not gone down well with shareholders. He received US$14.8 million in total compensation for last year, up from his token US$1 compensation in 2010.
Pandit was also awarded US$10 million in retention pay, which vests after 2013. Paid as an incentive for Pandit to stay on as chief executive, Citi’s compensation committee will assess him not on financial performance, but on non-quantifiable measures, such as talent management, organizational culture and risk management.
Citigroup nearly collapsed during the financial crisis and was rescued by US$45 billion in bailout money from the government in late 2008. In February 2009, Pandit said he would accept a salary of US$1 until the bank was able to turn a profit. The bank has reported profits for two consecutive years, but shareholders did not seem to agree that it was time to handsomely reward management yet.
“It’s a loud clarion call and an embarrassment to the directors, who now have to clarify the compensation metrics they use,” said Jeffrey Sonnenfeld, senior associate dean for executive programs at Yale University’s School of Management.