Opinion

Ben Walsh

Citi’s bold new compensation plan replaces one adjective with three bullet points

By Ben Walsh
February 25, 2013

The last time Citigroup tried to pay its CEO, shareholders freaked out, albeit in a ceremonial way. This time around, Citi has made some changes to the way it pays its CEO. Antony Currie thinks the “broad structure [of the plan] looks good”. The problem is that structure is basically a compilation of cosmetic changes that won’t do much to prevent the exact kind of decisions that got shareholders so enraged last year. Despite that, they’re probably probably just enough to discourage the intense criticism the bank faced last year.

Here’s Nathaniel Popper and Jessica Silver-Greenberg’s succinct characterization of the new status quo:

[Citigroup] announced on Thursday that part of the $11.5 million in compensation awarded to the new chief executive, Michael L. Corbat, would be closely tied to performance.

Is this an indication that Citi’s new “hands on” chairman is responding to shareholders? Citi’s regulatory filing addresses two big aspects of any comp plan — how much you get paid and how you get paid. On the question of the overall sum, Citi’s previous plan was remarkable in its honesty:

Look at how the committee decided in 2011: its only metric was its own discretion. That’s potentially the canonical example of why disclosure and transparency aren’t synonymous — we know technically how the committee decided, but the actual considerations involved in the decision-making process are opaque.

But those were the bad old days. From now on, the compensation committee will use a “structured framework” that replaces one adjective with three bullet points.  On cursory inspection, the new plan does look more structured than complete discretion. Then you get to the last clause of the third bullet, which allows the committee to ignore everything that comes before whenever it wants, based on what it thinks other people might pay or things it decides to pay attention to — but which are currently unnamed. That’s not really a change from a “discretionary” compensation plan. And in a certain way, it’s actually worse — it pretends not to be arbitrary in order to maintain arbitrariness.

In terms of how executives get paid, the changes are more complex, but still superficial. The amount of executive pay that comes in non-deferred cash stays the same, at 40% of overall awarded comp. What’s new is how the remainder of compensation is tied to future performance. Instead of being 30% deferred stock and 30% deferred cash, Citi execs will get paid in 30% deferred stock and 30% newly created “performance share units”. Digging through the details of the plan, the difference between getting paid in deferred shares and deferred cash, on the one hand, and deferred shares and PSUs, on the other, is de minimis.

So, if effectively nothing has changed in the process for deciding how much Citi executives get paid and there are only cosmetic changes to how they get paid, what’s the point?

Nell Minow at GMI Ratings explains to Popper and Silver-Greenberg why Citi revamped its pay policy while changing so little. Minow calls the new plan “far from perfect, or even good, but it’s less terrible than it used to be”. That’s a pretty spot on description, both of Citi’s pay practices and the institution. It’s also indicative of how the Citi’s board has, for the time being, stymied its compensation critics. They’ve created a non-binding process that  has produced a result similar to their peers. There’s nothing necessarily good or helpful about the process the board has created, but the they can at least say it’s doing something.

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