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April 18, 2012
Shareowners Vote Down Citigroup Pay Package
    by Robert Kropp

Fifty-five percent of Citigroup's shareowners vote against the executive compensation package proposed by management, marking the first time that shareowners have done so at a big bank.

Last year's proxy season was the first in which shareowners voted on Securities and Exchange Commission (SEC)-mandated executive compensation packages. Although much of the impetus for the regulation arose from the actions of the big banks that caused the financial crisis, the banks were among companies whose pay packages, in general, enjoyed overwhelming support last year. Institutional Shareholder Services (ISS), the proxy governance firm, concluded that 91.2% of shareowners supported management proposals on say-on-pay in 2011.

Furthermore, in a report identifying 42 S&P 500 companies at risk of failed say-on-pay votes in 2012, GovernanceMetrics International (GMI) did not include a single so-called too big to fail bank, because none of them fell below the threshold of a 70% vote in favor.

This week, however, indications of a shifting landscape emerged, as shareowners at Citigroup resoundingly defeated the executive compensation package recommended by management. Fifty-five percent of shareowners voted against the package, which proposes to pay CEO Vikram Pandat $15 million, despite the fact that Citigroup's share value fell by 44% last year.

The discrepancy between Pandat's pay package and the bank's share price may be the major factor contributing to the shareowner vote, but other factors came into play as well. ISS recommended that shareowners vote against the Citigroup package, stating, "Pandit's 2011 incentive pay and multiple retention awards are substantially discretionary in nature or lack rigorous goals to incentivize improvement in shareholder value."

And since last year's proxy season, the Occupy movement has succeeded in making economic inequality a core subject of the national discourse.

The vote at Citigroup was advisory, so it remains to be seen how the bank will respond. But during the meeting, retiring Chairman Richard Parsons said, "That's a serious matter. We're going to have some more conversation with our shareholders, make sure we understand their concerns, and then fix it." But in an interview afterward, Parsons attributed the vote to a failure of communication and not to the size of the compensation package.

Shareowners at Bank of America, which has also struggled in the last year, will vote on the compensation package for CEO Brian Moynihan on May 9th.


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