Per the Wall Street Journal: "Shareholders of Citigroup Inc. on Tuesday handed the bank a scathing rebuke, rejecting a board-approved compensation package for its senior executives that boosted Chief Executive Vikram Pandit's 2011 pay to $14.9 million from $1 a year earlier.
The shareholder vote, mandated by the Dodd-Frank financial overhaul law, is nonbinding and won't require Mr. Pandit or Citigroup's other executives to give back pay they have already received. But it is a rare setback for a large corporation and could force Citigroup to rethink aspects of its executive-pay practices. Corporate governance advisers had criticized Citigroup's plan because it failed to closely link pay to performance."
Citigroup's shareholders are the first of any major corporation to reject the executive compensation plan submitted for approval. The question is whether the board will take this non-binding vote seriously and begin to address concerns that pay is not significantly tied to performance at Citigroup. Early statements seem to indicate that management will consider this vote a serious rejection of business as usual.
Board chair Richard Parsons responded as follows: "The result 'is a serious matter,' Citigroup Chairman Richard Parsons said at the end of the company's annual meeting in Dallas, where the shareholder vote occurred. The directors will consult with shareholder groups to determine their concerns, he said. . . . The setback followed negative recommendations by two proxy-voting firms widely followed by institutional investors, and could foreshadow increasing shareholder activism. The California Public Employees' Retirement System, a major shareholder, voted against Citigroup's executive-pay practices because 'the bank has not anchored rewards to performance,' spokesman Brad Pacheco said."
Is more shareholder activism in the executive compensation arena on the horizon? The New York Times (DealBook) seems to think so. "The shareholder vote, which comes amid a rising national debate over income inequality, suggests that anger over pay for chief executives has spread from Occupy Wall Street to wealthy institutional investors like pension fund and mutual fund managers. About 55 percent of the shareholders voting were against the plan, which laid out compensation for the bank’s five top executives, including Mr. Pandit. 'C.E.O.’s deserve good pay but there’s good pay and there’s obscene pay,' said Brian Wenzinger, a principal at Aronson Johnson Ortiz, a Philadelphia money management company that voted against the pay package. Mr. Wenzinger’s firm owns more than 5 million shares of Citigroup."
If institutional investors become aggressive in combating the executive compensation problem in the United States, then we could see real change.
(photo courtesy of Aleš Gruden at sl.wikipedia)