Shareholders Reject Citigroup's $15m CEO Pay Package

April 18, 2012Investingby EW News Desk Team

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Citigroup shareholders have rejected a pay package that would have seen the bank’s chief executive receive $15 million a year, a major embarrassment for one of the world’s biggest banks. Citigroup’s chief executive, Vikram Pandit, received just $1 in 2010, and $128,741 in 2009.

Amid a backdrop of national discontent over obscene income inequality, Citigroup has become the first of Wall Street banking titans to get a veto from shareholders over supersized executive pay.

At its annual meeting on Tuesday, 55 percent of the Citigroup’s shareholders voted against pay packages that would have been granted to Citigroup’s top executives, including chief executive Vikram Pandit’s $15 million pay and a $10 million retention pay.

While the shareholder vote, mandated by the Dodd-Frank financial overhaul, is nonbinding and would not force the bank to amend its pay structure, the rare show of investor discontent is a clear warning for other banks who have insisted on increasing the pay of their top executives despite the slow economic recovery.

As part of the Dodd-Frank financial regulation overhaul, major US companies are require to allow shareholders a ‘say-on-pay’ vote at least every three years. The votes, however, are not binding.

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Speaking to Businessweek, Elenor Bloxham, CEO of board advisory firm The Value Alliance, said:

This vote is historic. None of the Wall Street firms have received this kind of review yet.

In particular, Citigroup’s shareholders are rejecting a board-approved package that would see Pandit pocket $14.9 million for the year 2011. Calling it a ‘serious matter’, Citigroup board chairman Richard Parsons promised to bring the matter back to the boardroom for further discussion.

Pandit received a token $1 remuneration for his work in 2010 and $128,741 in 2009.

Citigroup, one of the many banks that got bailout at the height of the subprime crisis, had received $45 billion from the government in 2008.

To make matters worse, Citigroup was one of the four major US banks that failed a stress test earlier this year, which led to the Fed rejecting a request by the bank to buy back shares or pay a higher dividend.

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According to Mike Mayo, an analyst with Credit Agricole Securities, executive pay has been a long-running problem at Citigroup, dating to well before Pandit joined in 2007.

Speaking to the BBC, Mayo said that Citigroup has had one of the worst stock price performances among large banks in the last decade, but ranked amongst the highest in terms of executive compensation.

Referring to what he saw as a ‘disconnect’ between pay and performance, Mayo said:

Citigroup is one of most egregious example of disconnect between incentives of top management and value creation of shareholders. The owners of the big banks, namely the shareholders, are finally taking a greater amount of responsibility by speaking up.

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