In a historic display of disapproval, Citigroup shareholders voted down proposed pay packages for top executives at the company’s annual meeting this week.
It’s the first time a major Wall Street bank has rejected bloated executive compensation packages. A majority of Citi’s shareholders (55%) voted against giving top executives top-dollar pay. At the center of the deal is CEO Vikram Pandit’s pay package, which included a $15 million salary plus a retention award, valued at $40 million to be paid out over the next three years. In 2011 Pandit received a $1.67 million salary and $5.3 million bonus. In 2009 and 2010 he only was paid $1. He had pledged to only receive the token amount as the company recovered from the recession and returned to profitability. Citi has turned a profit the past two years.
But is it too soon for the bank to start handing out big pay packages? Shareholders think so. Many are not very happy with several recent developments at Citigroup, which is celebrating its 200th anniversary this year. Last month the Federal Reserve shot down the company’s plan to raise shareholder dividends.
The pay plan rejection also came on the heels of an announcement that Citigroup’s net income was down 2% in the first quarter compared to last year. For 2011 the company’s earnings were up 4% but revenues were down by nearly 8%. Shares for Citigroup were down 44% in 2011. But shares have been slowly recovering this year.
Although the pay vote is a monumental move, it is still not binding. The “say on pay” vote, which is part of new rules enacted by the Dodd-Frank act, will not force the bank to adjust its pay structure. It’s merely a suggestion from shareholders. Outgoing Citigroup chairman Richard Parsons is taking the vote seriously and he said changes will be made to how the board evaluates leaders and a more quantitative, formula-based method for rewarding pay will be used. But it’s still a little unclear what Citigroup will do next regarding the issue.
It will be interesting to see if other big companies reject bloated executive pay packages in coming weeks as they hold their annual meetings. Citigroup’s shareholders may have not only sent a message to its executives, but all of Wall Street.