Thursday, April 19, 2012

Shareholders revolt over Citi CEO's pay

NEW YORK: In a stinging rebuke, Citigroup shareholders rebuffed the bank's US$15 million (S$19 million) pay package for its chief executive, Mr Vikram Pandit, marking the first time that big stock owners have united in opposition to outsized compensation on Wall Street.
The vote sends a powerful message that anger over pay for chief executives has spread from Main Street to wealthy institutional investors like pension fund and mutual fund managers. While the vote is not binding, outgoing Citi chairman Richard Parsons reacted swiftly, saying hours after the vote that changes will be made and that the board of directors will 'carefully consider' it.
The vote is also a warning shot to other banks that have increased the pay of their top executives this year despite a lacklustre performance. The other top US banks will hold their annual meetings in the coming weeks.
The pay packets of these Wall Street head honchos have dropped since the financial crisis but not enough to match profits; they are still 30 to 50 times higher than what the average employee in the US financial industry earns:
Bank of America
Mr Brian Moynihan

JP Morgan Chase & Co
Mr Jamie Dimon

Morgan Stanley
Mr James Gorman

Goldman Sachs
Mr Lloyd Blankfein
Said Mr Mike Mayo, an analyst with Credit Agricole Securities: 'This is a milestone for corporate America. When shareholders speak up about issues on which they have been complacent, it's definitely a wake-up call. The only question is, what took so long?'
About 55 per cent of Citi shareholders voted against the plan, which laid out compensation for the bank's five top executives, including Mr Pandit, at the company's annual meeting on Tuesday.
'CEOs deserve good pay, but there's good pay and there's obscene pay,' said Mr Brian Wenzinger, a principal at Aronson Johnson Ortiz, a Philadelphia money management company that voted against the pay package.
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 flashpoint of public outrage after the 2008 financial meltdown, which was caused in large part by those same Wall Street firms.
Nonetheless, pay on Wall Street has remained high, even after a taxpayer-funded bailout of the industry and the Great Recession that followed which left one in 10 Americans unemployed.
Until Tuesday, shareholders had 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' non-binding vote at least every three years.
Besides Citi so far this year, only two companies - International Game Technology and Actuant Corp, both non-financial - have failed to muster shareholders' approval of its pay practices.
Citigroup, in particular, has had the worst stock price performance among large banks over the last decade but ranked among the highest in terms of compensation for top executives, said Mr Mayo.
Mr Pandit received US$14.8 million in total compensation last year, up from his token US$1 compensation in 2010 and in 2009.
He was also awarded US$10 million in retention pay, which vests after 2013 - paid as an incentive for Mr Pandit to stay on as CEO. Citi's compensation committee assesses him not on financial performance but non-quantifiable measures such as talent management, organisational culture and risk management.
The issue was whether pay was linked to performance and whether those targets were spelt out and sustainable over the long term, said Ms Anne Simpson, director of corporate governance for CalPERS, which owns 9.7 million Citigroup shares and voted against the plan.
'Citi was found wanting on both,' she said. 'If you reward them for focusing on high-risk, short-term profits, that's what you get, and that's how the financial crisis caught fire.'