Counterparties: Citi shareholders speak on pay

April 18, 2012

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The shareholders have finally spoken. In a move that rebuked Citigroup management and the board of directors, the bank’s shareholders rejected the proposed $15 million pay package for CEO Vikram Pandit, as well as pay for three other execs.

Just this week, Citi released first quarter earnings that beat expectations, but signs of a stronger balance sheet haven’t been enough to cover the broader story here. Citigroup’s stock is down 44% in 2011, and 89% under Pandit’s tenure. Only a month ago the bank failed the stress test and then defended its capital position by, in part, calling the Fed’s evaluation “hypothetical.”

Shareholder rejection of management pay is exceedingly rare, but in this case it was far from radical: the ever cautious ISS recommended voting against the package not on the size of Pandit’s pay but on its lack of performance incentives. It’s those incentives that make executive pay material to shareholders at a $100 billion institution.

Shareholders may have finally fought back against pay for Citi execs, but it is worth remembering that executive compensation is an original sin of Pandit’s tenure at Citi. Pandit’s compensation for joining Citi through the acquisition of the asset manager he co-founded may climb to $200 million. And that acquisition, which cost Citi $800 million at the time and has since been closed and almost entirely written off, was reportedly done for the purpose of bringing Pandit into the Citi leadership.

For all the grandstanding about Pandit’s 2009 salary of $1, Citi shareholder’s seem to be at long last realizing that their financial returns for the last five years are a far cry from Pandit’s. – Ben Walsh

On to today’s links.

New Normal
The economy is growing again — but so is income inequality – WSJ
“The world’s central banker” behind China’s massive money creation – FT Alphaville
A Chinese whistleblower’s frantic race for asylum in the U.S. embassy – NYT

Steve Jobs: The lost interviews – Fast Company

The Oracle
Warren Buffett has Stage I prostate cancer – Reuters

The CEO of Instagram initially asked Zuckerberg for $2 billion – WSJ

A high frequency trader’s apology – Chris Stucchio

Michael Lewis would like to see a run on America’s biggest banks – Daily Beast

The CEO of America’s second-largest natural gas producer took opaque personal loans worth $1.1 billion – Reuters
Why Citigroup should definitely have seen the problems with Pandit’s pay coming – Deal Professor

EU Mess
Spain’s bailout really more of a “when” question than a “if” question – Reuters
Credit is shrinking at a record pace in Spain, and bad loans are getting worse – Bloomberg
Martin Wolf: Why the eurozone may actually survive – FT

Absolutely nothing will happen in the upcoming lame duck congress – Capital Gains & Games

Primary Sources
Tim Geithner: Please stop messing with Dodd-Frank – Politico

Some journalists may have to wait miliseconds longer for the jobs data – Bloomberg

U.S., Europe and Japan have share one big problem: protecting incumbent creditors – Interfluidity
How Abbott Labs keeps the U.S. from saving $700 million year – The Incidental Economist

Adding Value
Improving thrift store paintings with monsters – Twister Sifter


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