Citigroup Shareholders Reject Executive Pay Plan


In a stinging rebuke, Citigroupshareholders rebuffed on Tuesday the bank’s $15 million pay package for its chief executive, Vikram S. Pandit, marking the first time that stock owners have united in opposition to outsized compensation at a financial giant.

The shareholder vote, which comes amid a rising national debate over income inequality, suggests that anger over pay for chief executives has spread from Occupy Wall Street to wealthy institutional investors like pension fund and mutual fundmanagers. About 55 percent of the shareholders voting were against the plan, which laid out compensation for the bank’s five top executives, including Mr. Pandit.

“C.E.O.’s deserve good pay but there’s good pay and there’s obscene pay,” said Brian Wenzinger, a principal at Aronson Johnson Ortiz, a Philadelphia money management company that voted against the pay package. Mr. Wenzinger’s firm owns more than 5 million shares of Citigroup.

While the vote at Tuesday’s annual meeting in Dallas is not binding, it serves as a warning shot to other banks that have increased the pay of their top executives this year despite middling performance.

After the vote, Richard D. Parsons, who is retiring as Citigroup chairman, said that he takes the vote seriously and Citi’s board will carefully consider it.

Mike Mayo, an analyst with Credit Agricole Securities, said: “This is a milestone for corporate America. When shareholders speak up about issues on which they’ve been complacent, it’s definitely a wake-up call. The only question is what took so long?”

Shareholders rarely vote against compensation plans. The votes are part of the Dodd-Frank financial overhaul that mandates that public companies include “say on pay” votes for shareholders to express opinions about compensation. Last year, only 2 percent of compensation plans were voted against, according to ISS Proxy Advisory Services. In some instances, boards responded by reducing executives’ pay.

In Citigroup’s case, ISS itself recommended that shareholders vote against the pay proposal, citing concerns that the compensation package lacked “rigorous goals to incentivize improvement in shareholder value.” At Tuesday’s meeting, 75 percent of the shareholders voted.

Excessive pay has been a long-running problem at Citigroup, dating to well before Mr. Pandit became chief executive in 2007, analysts said. Citigroup 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, Mr. Mayo said.

Citi shares closed at $35.08 Tuesday, up 3.18 percent amid a market rally. Citigroup shares remain down more than 80 percent since the financial crisis.

Last year, Mr. Pandit’s compensation included a $1.67 million salary and a $5.3 million cash bonus. In addition, he received a retention package valued at $40 million, to be awarded through 2015. In 2009 and 2010, as Mr. Pandit struggled to pull the bank back from the brink, he accepted only a $1 annual salary.

Still, investors say that it is too soon for the bank to start giving out generous pay packages again. “The company has been flatlining,” said Mike McCauley, a senior officer at the Florida State Board of Administration, which voted its 6.4 million shares against the plan. “The plan put forth reveals a disconnect between pay and performance.”

Calpers, the California state pension fund, also voted against the plan. The issue was whether pay was linked to performance and whether those targets were spelled out and sustainable over the long term, said Anne Simpson, director of corporate governance for Calpers, which owns 9.7 million Citigroup shares.

“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.”

Not all institutional investors are unhappy. Bill Ackman, the head of Pershing Square Capital Management, which owns more than 26 million shares, said he thinks that “Vikram Pandit is doing an excellent job and the bank has made tremendous progress during his tenure.”

Noting that Mr. Pandit received just $1 a year in 2009 and 2010, Mr. Ackman called the current package “an appropriate level of compensation.”

In justifying the pay package, the company noted in its proxy filing that Citigroup net income was $11.1 billion in 2011, up 4 percent from 2010 and that it paid back the federal government billions in bailout loans and deferred cash awards to “limit incentives to take imprudent or excessive risks.”

Even as Citigroup’s earnings and capital cushion have improved, the bank has struggled to make up for lackluster revenue. Citi was dealt a further blow in March when the Federal Reserve rejected the bank’s proposal to buy back shares and increase its dividend. While Citi intends to submit a revised plan to the central bank this year, shareholders say that with a quarterly dividend of one cent, Citi’s top executives shouldn’t be rewarded.

“Citigroup was terribly managed and whatever could be done wrong, they did wrong,” said David Dreman, whose money management firm owns about $400,000 worth of Citigroup shares. While many of those mistakes predated Mr. Pandit, he said, it was way too early to start handing out generous pay packages. “Shareholders have finally done something constructive on the whole C.E.O. pay problem,” he said.

Mr. Pandit’s compensation is higher than some more successful rivals, according to proxy filings. Lloyd C. Blankfein, the chief executive of Goldman Sachs, received $3 million less than Mr. Pandit’s $15 million, while James P. Gorman, the chief of Morgan Stanley, had a pay package of $10.5 million.

Still, disapprovals are rare. Last year, shareholders at 42 companies — out of more than 3,000 firms — voted against pay plans. In one of the most visible renunciations, shareholders atHewlett-Packard, which has struggled with lackluster returns, voted against the pay for the technology company’s top executives, including the chief executive, Meg Whitman.

Companies should brace for more shareholder denunciations, said James D. C. Barrall, an executive compensation lawyer at Latham & Watkins. The nation’s other major banks have their annual meetings in the coming weeks.

Bank of America, whose shares have also struggled, could be the next bank to feel shareholders’ wrath when it holds its annual meeting May 9, executive compensation consultants said. Its chief executive, Brian T. Moynihan, received $7 million for 2011, down from $10 million the previous year.

“There could be a real disconnect between pay and performance at Bank of America,” said Frank Glassner, a partner with Meridian Compensation Partners, an executive consulting firm.

Inequality is the Issue – P.Sainath on World Economic Forum

The comforting thing about the sham wrestling ‘championships’ on television is that everybody knows they are a farce. Steroid-stuffed Cro-Magnons stomp the living daylights out of painkiller-primed Neanderthals. Good, unclean fun. The results are safely predictable. You should expect the 600-pound gorilla to overwhelm the 900-pound one in a staggering twist of fortune (after the bets have been laid). But the audience, the organisers, and the fighters all know the fighting is rigged and everyone’s happy.

There were many, pre-television Indian symbols of this honourable tradition. As school kids, we cheered wildly as Black Spider brutally crushed Red Spider’s brother in an open-air bout. The roaring crowd dispersed only after Red Spider jumped into the ring to promise us he would throttle Black Spider in a revenge match the next week, so buy your tickets in advance. (He then toddled off to dinner with Black Spider). At age 8, it was magical.

Decades later, television has given sham ‘wrestling’ giant audiences, made it more spectacular, but perhaps less convincing. (The close-ups are a dead giveaway). But almost everybody still knows what to take seriously and what not to. That, and the fact that they entertain more people, are what demarcate the world wrestling extravaganzas from the World Economic Forum. (Both, otherwise, fully corporate enterprises). The wrestling corporations take the money seriously. The World Economic Forum takes itself seriously, besides the money.

The WEF‘s first ever summit in Mumbai ended on the 14th Nov . Its main organiser was the Confederation of Indian Industry. But both the Centre and the Maharashtra government came out in “support.” The Chief Ministers of Maharashtra and Kerala (both States reporting rising farm suicides) hosted ‘cultural evenings’ and/or expensive dinners for this billionaires club, besides providing other forms of ‘support.’ The WEF’s May 31 press release announcing Mumbai as the venue had this mysterious line: “The Summit will return to New Delhi in 2012 and 2014 in time for India’s next national election.” Wow, is the WEF running for office? And why shift from Delhi to Mumbai? Was it embarrassing for a government drowning in corporate corruption and scams to “host” the corporate world’s Croesus Club in the capital?

And so, the governments that cannot add a few hundred rupees per quintal to desperate paddy or cotton growers find the means to subsidise the global billionaire fraternity. Union Ministers and Chief Ministers came down to the Grand Hyatt in Mumbai to reaffirm support.

But why? What exactly does the WEF deliver to India? Or anybody? Has it brought you staggering investments? Unlike the sham wrestling world, the WEF can predict nothing safely. (And they’re hardly entertaining). When did this crowd ever get anything right? Did it warn you of the 2008 meltdown or the Euroquake? ( It did grimly observe in Mumbai that Europe is in trouble. Gee. The rest of us would never have suspected that).

Dean Baker puts it so well: “Economic forecasters are not workers like dishwashers and cab drivers who are held accountable for the quality of their work. They can be wrong every day about everything and face little risk to their career prospects.” ( CounterPunch , August 25, 2011).

However, by WEF standards, the Mumbai show was a bit subdued. The U.S. and Europe are reeling in crisis driven by the very economics the WEF stands for. India was still rising but not shining. Even the Planning Commission-driven India Human Development Report admits: “the average percentage of undernourished children under five years for 26 Sub-Saharan African countries was 25 per cent, about half the Indian average of 46 per cent. Weight and height of Indians on average have not shown significant improvement over the last 25 years.”

India’s rank in the 2011 Global Hunger Index, at 67 out of 81, places us seven notches below Rwanda which apparently handles food security better. We’re also below Sri Lanka (rank 36), Nepal (54) and Pakistan (59). The GHI 2011 states flatly that its data “does not reflect the impacts of the 2010-11 food price crisis.”

And the country gracing the top five when it comes to dollar billionaires now ranks 134th in the 2011 U.N. Human Development Report. Our over 55 billionaires grew their wealth at an astonishing rate in the post-1991 era. And there’s the India story: the consciously constructed, ruthlessly engineered inequality of it. Just see our HDI Value in the UNHDR. It reads 0.548. Adjusted for inequality, this value falls by close to 30 per cent. India’s ‘multi-dimensionally poor’ now exceed 612 million, as the report shows us.

But debates over India’s dismal performance in giving its people the basic minimums always evade the policy framework of the past 20 years that has driven such levels of inequality. You can blame ‘tardy implementation,’ ‘poor delivery,’ anything — except the policies that have devastated hundreds of millions of poor Indians. And, of course, there is not even censure for the top guns and whizz kids.

As Baker points out, for this kind of group, there are no bad consequences. If you think that disastrous failures would hurt their record “then you don’t understand economic forecasting. There is no reason to believe that forecasters are any more knowledgeable about the economy today than they were four or five years ago.”

Need a good Indian illustration of this? Take Planning Commission deputy chief Montek Singh Ahluwalia and Finance Ministry Chief Economic Adviser Kaushik Basu and their multiple predictions on the economy, particularly on inflation. (Which, says CRISIL, forced Indians to spend close to Rs. 6 lakh crores extra in 36 months). With inflation close to double digits and food inflation at 10.63 per cent, they now admit, sort of, that we were, ahem, not quite as right as we are normally known to be. But we will, umm … probably will return to being right in the near future.

Dr. Ahluwalia even admits to credibility issues popping up. “It is true that we were hoping that this [moderation in inflation] will happen earlier, to that extent our credibility becomes a question.” ( The Times of India , Nov. 21, 2011). And straightaway makes another prediction — “inflationary pressure would ease from the beginning of next year.”

Dr. Basu believes it will start declining in December itself. If in February, says Dr. Ahluwalia, the data show that “inflation is not coming down by then, then we really don’t know what we are doing.” India’s human development indicators suggest they haven’t a clue about what they were doing for 20 years. That, however, is not so. They knew what they were doing. Constructing a world based on a trickle-down, greed-is-good, inequality-helps philosophy. It made things much worse, though not for the authors of the mess.

The WEF has gone. This time, it did not get the kind of publicity to which it is accustomed. Which brings us to the media. Who has been paying for, or heavily subsidising, the large contingents of Indian media that do the Davos Drool each year? Answer: Indian industry, which likes to have its cheerleading team along. Some of the rent-a-report crowd is from media outlets which will not spend a few thousand rupees to send a journalist to cover huge issues of hunger within the country. Switzerland is an expensive place. And Davos is at its costliest in the WEF season. Yet several Indian journalists seem to afford it.

Quite a few have had their costs, including air travel and more, covered by industry lobbies, many of whose members are major advertisers and a big source of media revenue. There are newspapers that have given Davos summits far more coverage than they have the most vital bills before Parliament. There are channels that have had “partnerships” with the CII and the WEF to cover Davos (always euphorically). Strong and rigid rules are issued to journalists on how to report. One such instruction: “Please note we cannot say “WEF”… it is the World Economic Forum and one is not allowed to call it otherwise.” Wonder why? Does the acronym WEF sound too much like one of the sham wrestling outfits? Another fatwa from a television group: “the following programming from CII has to be incorporated in the programming of all channels.”

Surely, the audiences watching the completely uncritical coverage of the WEF have a right to be told that the content was sponsored? When the funding is not clearly stated, when the content heavily favours the sponsor, when criticism is unknown, when correspondents are told how to fulfil their duties to their “partners’ — this is what is called Paid News. But there is a pact of silence about this. A fine example of the kind of ‘self-regulation’ that media bosses have in mind?

The organisers, lobbies, funders, the media — all know what’s happening. But not, in this case, the audiences, readers or viewers. Where are you, Black Spider and Red Spider? All is forgiven, come home.

The audience, organisers, and fighters know that sham wrestling is not to be taken seriously. But the World Economic Forum takes itself seriously. (Appeared in Hindu novemebr 2011)


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