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Citibank Shareholders Give Thumbs Down to CEO Raise

Discussion in 'Sports and News' started by doctorquant, Apr 18, 2012.

  1. doctorquant

    doctorquant Well-Known Member

  2. The Big Ragu

    The Big Ragu Moderator Staff Member

    This was about Citigroup's performance, not a statement about executive pay. Even though that will be the wishful thinking.

    Vikram Pandit is a mediocre manager at best, and shareholders should be worried about Citigroup moving forward -- Citi failed the Fed's last round of stress tests last month, and they were tests designed to make as many banks as possible pass -- they are based on unrealistic hypotheticals that don't take into account what the most likely next financial crises are. They basically are doing the tests they should have been doing prior to 2008. This isn't 2008, though.

    Two thirds of Citi's shares are owned by institutional shareholders, and they were simply saying that there isn't a planet within a billion miles of Mars on which Virkam Pandit's salary should be higher than Lloyd Blankfein's.
  3. Baron Scicluna

    Baron Scicluna Well-Known Member

    It's both.

    It shows that shareholders want performance, and aren't willing to just rubber-stamp the compensation based upon some vague threats of, "If I don't get it, I'll go elsewhere!"

    In other words, the CEO isn't getting rewarded for just showing up. Now, the big question is, will other shareholders and CEOs take note, or just dismiss it as anamoly.
  4. I think Baron's right. I read the Reuters report and some others, and it's clearly a slap at Pandit's work. It's about time that shareholders held execs accountable. Whining and saying, "I'll leave!" should be answered with, "There's the door. Don't let it hit you in the ass on the way out."
  5. lcjjdnh

    lcjjdnh Well-Known Member

    My favorite part about it:

    NON-binding! vote.

    Must be nice not to actually have to answer to the people that pay you.

    (Although, to be fair, it would apparently at least open the directors to a lawsuit if they don't change the pay package based on this:http://dealbook.nytimes.com/2012/04/18/citigroup-has-few-options-after-pay-vote/. Whether shareholders would win is a different story. )
  6. The Big Ragu

    The Big Ragu Moderator Staff Member

    Of course it is non-binding. You have boards of directors to make those corporate governance decisions. Corporations aren't run by popular shareholder vote. It would be unwieldy, would require more of shareholders than most want and would lead to corporations being jerked back and forth between incohesive strategies.

    Shareholders have never decided executive pay by popular vote. Nor do shareholders decide anything about the operations of a corporation by popular vote.

    The shareholders of Citigroup elect a Board of Directors to represent them. That is basic corporate governance. The Board of Directors has a fiduciary responsibility to the shareholders and are ultimately answerable to the shareholders, who can vote them out.

    It's similar to your relationship with your Congressman or Congresswoman. If you don't like the job he or she is doing, you can vote him or her out and elect someone else. But you don't get to vote personally on every matter that comes up before Congress, nor would anyone expect to effectively run the country that way.

    The Board of Directors represents shareholders in the same way. They are responsible for corporate governance, and that includes designing the compensation policy.

    The reason that compensation policy (since last year) comes up for a non-binding popular vote by shareholders is that the Dodd-Frank Act made it the law. It's kind of non-sensical, as was most of the act, in that it was done for populist reasons that serve no necessary purpose. Shareholders have always had the ability to vote out a board of directors if they were unhappy with executive compensation. That hasn't changed. What Dodd-Frank mandates has to be non-binding, because it would throw the rules of corporate governance out the window by bypassing the directors that shareholders elect to represent their interests.
  7. lcjjdnh

    lcjjdnh Well-Known Member

    You are, of course, aware of the many problems that prevent investors from actually running proxy fights that would allow them to vote out the board of directors when they fail to properly represent shareholder interests?

    Since shareholders delegate power to the board of directors, they would certainly be entitled to reserve some for themselves. But because of the collective action problems endemic in public ownership, it's entirely plausible they couldn't actually run a proxy fight to regain this power for themselves.
  8. doctorquant

    doctorquant Well-Known Member

    Well, let's not kid ourselves. The majority of Citi's investors are so-called institutional investors (e.g., mutual funds, pensions, etc.). If they wanted to they sure as hell could put together an effective proxy fight. This ain't Mom and Pop going up against Wall Street here ...
  9. Point of Order

    Point of Order Active Member

    Thank you Dodd-Frank.
  10. The Big Ragu

    The Big Ragu Moderator Staff Member

    Yup. Odds have historically been stacked against most proxy wars, because of things incumbent directors and management can do, such as staggering board elections.

    That said, given that the odds of success in a proxy fight have never been better -- institutional investors and hedge funds now win those wars far more than they lose -- and this was a trend that preceeded Dodd Frank.

    It's not like dissident shareholders needed a silly non-binding symbolic piece of political grandstanding to accomplish what they had already been accomplishing for the last decade and have continued to have more success accomplishing.
  11. lcjjdnh

    lcjjdnh Well-Known Member

    Incentives still skew away from doing so. You put up all the costs, but, if you win, only get part of the benefit. Encourages free riding, which discourages proxy fights.
  12. lcjjdnh

    lcjjdnh Well-Known Member

    That could be the case, but the limited statistics you show don't prove that. Just because the winning percentage is high doesn't mean there are good odds in any random case. It could just be the proxy fights that go on take place in the cases in which the proxy is most likely to succeed.
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