Vikram Pandit’s remuneration position considered misplaced
A plan that would have seen the chief executive of Citigroup, Vikram Pandit, receive tens of millions of dollars has been criticised by the company’s shareholders.
About 55 percent of the shareholders either refrained from voting or voted against the plan at a non-binding annual meeting that took place in Dallas recently. This makes Citi the first major US bank to face serious dissent from the majority of shareholders on executive remuneration and only the 12th S&P 500 corporation to lose such a vote.
The outgoing chairman of the group, Richard Parsons, referred to the vote as “a serious matter” and went on to say that there would be a meeting of directors and shareholders where the latter’s objections would be discussed.
Corporate governance advisory groups earlier recommended that shareholders should vote against the pay plan.
The California Public Employee’s Retirement System’s head of corporate governance, Anne Simpson, said: “The golden rule of say on pay is to demonstrate that rewards are being earned for performance… Citi failed that test.” Her organisation voted against the remuneration plan.
Last year Pandit’s total remuneration package was $15m. Of that, $1.7m was his salary. Then he also received a cash bonus of $5.3m, deferred cash of $4m and deferred stock of $4m.
An analyst at brokerage company CLSA, Mike Mayo, said that Citi has been faced with high executive remuneration and poor share performance for the past ten years.
He added that it was surprising that it took shareholders such a long time to act. He feels that there is not a sufficiently clear link between performance and pay in the company. To qualify for these massive pay outs, he says, management has to cross ridiculously low hurdles.
Both of the two major firms advising shareholders, ISS and Glass Lewis, advised that investors should veto the bank’s plan – something which does not often happen in the US. In 2011 only 41 firms in the Russell 3000, which includes Jacobs Engineering, Hewlett Packard and Stanley Black & Decker, could not harness majority support in similar votes during the first year the law required companies to hold these ballots.
A day before the vote Pandit told shareholders they should not count on any increase in dividends during 2012. He announced improved profits for the first quarter of the year, but said that Citi still had to get permission from the Federal Reserve for share buybacks and increased dividends.
The shareholder decision shocked some of the company’s major investors, who did not expect the results. One of them said: “We never picked up any hint that management were worried.”