Shareholders don't often vote against huge CEO pay

— -- Irate Citigroup shareholders slapped down CEO Vikram Pandit's proposed $15 million pay package this week. Is this the start of a trend in which millions of investors rise up against outrageous pay for middling — or worse — executives?

Probably not.

Of the 200 or so proxy votes completed this year, only four received a majority negative vote on executive compensation, says pay analysis firm Compensia. Last year, 41 companies in the Russell 3000 index voted down executive pay packages.

But the Citigroup situation may signal that investors, particularly large institutional investors, are starting to look at pay a bit more carefully as they evaluate a stock. The Citigroup vote wasn't preceded by a big campaign by activist investors. And it may — just may — mean that CEOs can no longer automatically assume that they'll rake in millions even if the company fares badly.

CEO pay might be a hot button with the masses. But when it comes down to investors actually making a statement, it's very rare.

Investors have had the right to vote on executive pay plans for two years, thanks to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. However, the votes are non-binding, meaning a board of directors can simply ignore the vote and proceed with the executive's pay package.

Last proxy season, the first year investors were able to vote on pay plans, 43 plans out of 3,100 analyzed were voted down, says Mark Borges, principal at Compensia. Only a few hundred plans received less than 80% support, he says.

It's much too early in the current proxy season to know how many plans will be voted down by shareholders. About 200 companies have held meetings and disclosed the results of the shareholder votes, Borges says. Most of the meetings are held from late April through June. "It's a little early to know," he says. But "if shareholders had problems with compensation, that would have been reflected in last year's vote."

It's unlikely investors at many companies will follow the lead of those at Citigroup and vote down executive pay plans this proxy season, Borges says.

A special case?

Shareholders' disapproval of Citigroup's plan is more the exception than the rule. Just three other companies, International Game Technology, Actuant and KB Home, have had executive pay plans voted down this year, Borges says.

By Wall Street standards, $15 million isn't egregious. But Citigroup is a classic example of a raise that attracts attention, says Eleanor Bloxham, CEO of the Value Alliance. Pandit saw his pay jump to $14.9 million in 2011 up from $1 in 2010 and $128,751 in 2009, according to the company's proxy statement. Meanwhile, the company, which has paid a 1-cent-a-share quarterly dividend since 2011, may hold off on boosting the dividend until providing a 2013 capital plan to the Federal Reserve. At Wednesday's close of $35.08, the stock's annual dividend yield is 0.1%.

Investors are saying, "We didn't get paid. Why should you?" Bloxham says. Meanwhile, Citigroup's profit targets, which were used as a basis to set executive pay, were too low and easy to top, she says.

Also, Citigroup's turnaround has not been a huge success. "This is a company that's still struggling," says Timothy Smith, senior vice president of Walden Asset Management. "It seemed outsized and inadequately related to performance."