Citigroup Shareholder Sues Over Executive Compensation

Citigroup sued about executive pay after a failed 'say-on-pay' vote.

April 20, 2012, 12:18 PM

April 20, 2012 — -- A Citigroup shareholder filed a lawsuit against Citigroup CEO Vikram Pandit and the bank's directors over a compensation package that was contested by investors in a rare failed "say-on-pay" vote this week.

Stanley Moskal, a Citi shareholder, filed the lawsuit on Thursday in a New York federal court, in the hope of forcing Pandit and the directors to pay damages to the bank and to improve internal controls, Reuters reported.

Citigroup shareholders voted to reject the company's executive compensation plan during an annual stockholders meeting in Dallas on Tuesday after critics complained that top officials including CEO Vikram Pandit enjoy high pay that's not well connected to increasing shareholder value.

The pay proposal received just 45 percent of votes cast and followed Citigroup's announcement on Monday that profit fell 2 percent to $2.9 billion from a year earlier, missing analyst expectations.

Some "say-on-pay" lawsuits against companies do not survive the motion to dismiss in court, said Brian Foley, pay consultant and managing director of Brian Foley & Co. in White Plains, N.Y. Foley said it it "highly likely" there may be more lawsuits against Citigroup if the company proceeds with its pay package.

"If Citigroup acts quickly and significantly maybe that reduces that likelihood or makes an impact. It depends on what they do," Foley said.

Foley said one driving factor on whether the financial giant moves forward with its executive package is how CEO Pandit responds.

"He was paid a very significant amount in 2011 in which they made award commitments to him. Those don't come off the table unless he or they act," Foley said. "If they act and he doesn't acquiesce, [the awards] are still his. As a practical matter, it would have to be a joint action."

Citigroup's CEO Pandit, 55, had $15 million in payment for 2011, which included a base salary of $1.7 million, a cash bonus of $5.3 million, almost $4 million in deferred stock and another near $4 million in deferred cash. His total compensation was over $40 million.

Pandit had an annual salary of $1 for most of 2009 and 2010 while the bank dug out from a government bailout.

Pandit, 55, had the 45th highest compensation among CEOs last year, according to Equilar, an executive compensation research firm. Tim Cook, CEO of Apple, had the highest pay at $378 million.

Citigroup reportedly conducted meetings with institutional investors who aired their concerns before the pay package was put up for a vote.

"I don't think any of this could have been a surprise to them," he said. "If they decided to move forward anyway they must have realized that was a risk."

Other companies often respond to the concerns of institutional shareholders with supplemental proxy statements, Foley said.

"Citi didn't do any of that. Having passed on the chance to take their case back to the shareholders, I don't know what the prospects are they will do much now," Foley said. "This was a train you could see coming."

On Tuesday, a spokeswoman for Citigroup said, "Citi's Board of Directors takes the shareholder vote seriously, and along with senior management will consult with representative shareholders to understand their concerns." The spokeswoman said the Personnel and Compensation Committee of the Board "will carefully consider their input as we move forward."

"What was awarded in 2011 is still sitting there, and if they move forward with it, my guess is they will be sued and sued more than once," Foley said previously.

Cincinnati Bell Inc., however, that was unable to dismiss an executive compensation lawsuit brought by shareholders. Investors sued the telephone company after a failed shareholder vote in May 2011. A U.S. district judge in Cincinnati allowed the lawsuit to proceed in September, and the company reportedly approved a proposed settlement for the suit in December 2011.

On Wednesday, FirstMerit Corp. became the fourth company this year to have a failed vote from shareholders about executive compensation. Actuant Corp., an industrial manufacturer and distributor, and International Game Technology, a gaming machines company, were the other companies that had a failed vote this year.

Most companies with publicly traded stock held "say-on-pay" votes in 2011 according to the Dodd-Frank financial regulatory reform law. The U.S. Securities and Exchange Commission exempted smaller companies with less than $75 million in publicly traded stock from holding these votes until 2013. Only 41 out of the 3,000 companies in the Russell 3000 Index had failed "say-on-pay" votes last year, according to Ted Allen, spokesman for ISS Proxy Advisory Services.

Included in the compensation package detailed in Citigroup's 2012 annual proxy were multi-year retention award packages for the senior management team. Pandit's "executive long-term performance retention award," Pandit's could be worth $40 million, Bloomberg reported.

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