Citigroup investors push back on exec pay packages

Bob Moon Apr 18, 2012

Bob Moon: Citigroup investors just pushed back on outsized executive pay. Fifty-five percent of the bank’s shareholders voted against pay packages for top execs, including $15 million in compensation for CEO Vikram Pandit. The vote is advisory only, though, and thus doesn’t actually force a change in Citi’s pay practices. So what will it accomplish?

Executive compensation expert Paul McConnell is on the line with his take on the message it sends. He’s managing director at Board Advisory LLC. Glad to have you join us.

Paul McConnell: Thank you.

Moon: I’ve seen stories that Citigroup can go ahead and stay with its pay practices in spite of this vote. If this doesn’t change things, what might?

McConnell:  Well, it is an advisory vote, which means it’s non-binding on the board. But it’s non-binding in the sense that the pay is not going to be taken away as a result of this. The board will react to this; no board is going to take a “no” vote from shareholders and ignore it. If they were — which is, I think, first of all not going to happen –but if they were, the next step with shareholders would be to vote the board members out.

Moon: Do you think the attention this is getting might touch off some kind of shareholder revolt at other companies over these pay packages?

McConnell: I mean, first of all, you’ve got to understand — the Citi corp. pay package is not outrageous in terms of the amount of pay. I think the issue at Citi corp. is more, shareholders are questioning the relationship between pay and performance.

Moon: So these Citi shareholders are basically saying: You want this, you’ve got to earn it?

McConnell: They’re unhappy with that subjective approach. They think the standards are probably not high enough for the amount of compensations earned.

Moon: But you don’t think this reflects general angst among shareholders in general — not just at Citi?

McConnell: No I do not. As a matter of fact, the reason for that is that corporate America has done a pretty good job over the last two or three years in removing most of what are known as “problematic pay practices,” that were really making shareholders irate.

And also you’ve got to understand with Citi, there could be a lot of other things rattling around here. Citi is an organization that’s had its share of troubles over the last few years. And they’re basically telling the board that something is wrong and they want it fixed. And the board will probably make some changes in the pay programs in reaction to this.

Moon: Paul McConnell at Board Advisory LLC. Thanks for your insights.

McConnell: You’re welcome.




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