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Citigroup vote shows shareholder unrest

Citigroup and other companies face shareholder disapproval of high executive pay.

Kai Ryssdal: In the American corporate calendar, spring is a special time. It's annual meeting season, when shareholders gather from far and wide to inspect the investments they've made.

And they're restless this year. Citigroup shareholders gave a big N-O to a nearly $15 million pay package for CEO Vikram Pandit. The Dodd-Frank financial reform law does in fact require companies to hold a shareholder Say on Pay vote.

But here's the catch: It's not legally binding. Marketplace's Sally Herships has more.


Sally Herships: Say I’m the board of directors for a company you own stock in. I’m tell you how much I’d like to pay my CEO -- lots and lots -- and you, the shareholder, get to vote on it. Remember I don’t have to pay attention -- so will I?

Steve Kaplan: There’s no doubt boards pay attention, no doubt.

That’s finance professor Steve Kaplan at University of Chicago’s Booth School of Business. He says last year more than half the shareholders in Stanley Black and Decker voted against proposed executive pay. So the tool company made changes. It required its executives hold stock longer and:

Kaplan: And they reduced the pay of their CEO.

 
John Lundgren took a $19 million pay cut, but he still made almost $14 million. But Kaplan says the vast majority of companies  got a thumbs up on executive pay. Companies with grumpy shareholders face a balancing act.

Theo Francis writes for Footnoted.com, a blog published by Morningstar.


Theo Francis
: Essentially what they’re trying to do is find a middle ground between the critics and the executives. Because the executives presumably think they’re worth every penny they’ve been paid.

And Citigroup says it’s taking Tuesday’s shareholder vote seriously.

In New York, I’m Sally Herships for Marketplace.

About the author

Sally Herships is a regular contributor to Marketplace.
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While it's nice that shareholders now get a (non-binding) say in executive pay, it still needs to be said that your AVERAGE shareholder still has no say in the process.

Why, you ask? Because most people who own stock (including myself) do so through participation in mutual funds, where professionals construct stock portfolios to meet a variety of investment goals. This spares consumer-grade investors from having to spend hours making sound investment decisions, but one of the downsides is that mutual fund investors do NOT get voting rights on the stock they own via the mutual fund. Those rights are retained by the fund manager, whose goals may or may not be aligned with those whose funds they are managing.

So, if you're willing to take a slight (0.1 - 0.2%) decrease in investment performance in exchange for an across-the-board veto on extravagant executive pay, forget it. The mutual fund managers (who by and large owe their allegiance to "the system" rather than the wishes of their investors) won't do a thing to help you. And, short of "nuclear" options like foregoing mutual funds and picking ALL of your own stocks (usually not possible in company 401k plans), there's nothing you can do about it.

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