Citibank Shareholders Give Thumbs Down to CEO Raise

[User 11148]

Apparently Citi's shareholders said "No, show us the money!"

http://www.reuters.com/article/2012/04/18/us-citigroup-pay-idUSBRE83H1GC20120418

Am sure that now that the increase to the top management team's compensation has been given the heave-ho by Citi's shareholders, compensation at lower levels in the corporation will rise.

 

[The Big Ragu]

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.

 

[Baron Scicluna]

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

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.

 

[lone star scribe]

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."

 

[lcjjdnh]

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. )

 

[The Big Ragu]

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. )

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.

 

[lcjjdnh]

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. )

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.

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.

 

[User 11148]

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 ...

 

[Point of Order]

Thank you Dodd-Frank.

 

[The Big Ragu]

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. )

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.

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?

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.

 

[lcjjdnh]

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 ...

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.

 

[lcjjdnh]

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. )

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.

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?

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.

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.

 

[The Big Ragu]

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 ...

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.

I have a vague idea about what you were trying to say. But that is the way life is. You can wage an expensive campaign against an incumbent politician who can outraise his opponent 3 to 1. And your chances of ousting him won't be that great. And that discourages people from waging those kinds of wars. Then is the breaks. You don't always get your way.

What you ARE missing, though, is that shareholder activists very often achieve their goals without all out proxy wars. They negotiate behind the scenes. And they can do that with great incentive -- gaining nearly all of the benefit.

This from something the Wall Street Journal did this week, demonstrating what I am talking about. A company like Citigroup can have 10 or more proposals on their proxies in any given year.

Goldman Sachs, had no more than one proposal between 2000 (when it went public) and 2006, and only three in 2007 and four at the height of the financial crisis in 2009. This year it fought to have a half dozen proposals -- all of them highly embarrassing to the board and management -- removed via SEC ruling.

Goldman negotiated with the Association of Federal, State and City Municipal Employees to get the union to withdraw a proposal to split the role of chairman and chief executive at Goldman, which could have cost Lloyd Blankfein his seat as chairman. The company appointed James Schiro its lead director, a compromise that Afscame wanted. Without a full-out proxy war, and without bearing great expense or any free rider problem, the union used its clout to achieve changes it wanted.

Goldman also negotiated with the New York City Comptroller and got him to writhdraw a proposal that dealt with pay clawbacks. Again, no full-out proxy war, and no great expense necessary. Just the threat of a proposal that would subject the company to negative publicity and some horse trading to make the dissatisfied shareholder happier.

 

[lcjjdnh]

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 ...

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.

I have a vague idea about what you were trying to say. But that is the way life is. You can wage an expensive campaign against an incumbent politician who can outraise his opponent 3 to 1. And your chances of ousting him won't be that great. And that discourages people from waging those kinds of wars. Then is the breaks. You don't always get your way.

The difference, though, is people are bound by financial interests here. Those institutional investors can't--or at least really shouldn't--frivolously spend money fighting proxy wars even if they know they are right and really, really hate the board of directors. Other considerations are in play when you have a political election.

That negotiation stuff is interesting. Do you have a link*?

* Also, only very, very tangentially related: since you seem to be keep up with business, do you think online subscriptions to the FT and/or WSJ are worth it? I used to have both, but dropped them--especially after the NYT bulked up its business coverage with Dealbook. Would be purely for my knowledge, not for investment purposes, etc.

 

[trifectarich]

I haven't voted for approval of any executive compensation package in at least 10 years.