Is Citigroup CEO Vikram Pandit worth $15 million a year?
Citi shareholders don't think so. They gave a vote of no confidence to Pandit's board-approved compensation package on Tuesday, snubbing Pandit and sounding a clarion call to other investors: It's time to fight excessive executive pay.
Shareholders definitely made a bold statement by rejecting the offer but their vote is nonbinding, meaning Citi's board can still pay Pandit the proposed $14.9 million compensation package this year.
After accepting a $1 salary in 2009 and 2010, Pandit's compensation increased to around $7 million last year. He also received a $40 million retention package that will be paid out over the next few years.
According to The Wall Street Journal, Citigroup is the first major bank to have experienced shareholder backlash against executive pay. Just two percent of compensation packages were voted down last year based on research by ISS Proxy Advisory Services, a provider of corporate governance solutions to financial firms.
Shareholders have singled out executive pay over the past few years as CEO salaries have reached unprecedented levels, even in the face of falling stock prices and disappointing company performance.
Citigroup, the biggest beneficiary of government funds during the 2008 financial crisis, continues to lag its banking peers. The Federal Reserve reported that Citi failed to meet its minimum standards in the central bank's most recent round of stress tests, which it conducts to determine how banks would fare in another financial downturn.
As Henry and Aaron point out in the accompanying video, CEOs deserve to be well compensated when a company regularly meets and exceeds performance benchmarks. Citi, which is the third-largest U.S. bank, has been struggling to boost revenue and income.
On Monday Citi reported first-quarter revenue of $19.4 billion, up four percent from a year-ago but shy of consensus estimates. Shares of Citi (C) rallied in reaction to its first-quarter results, which featured strength in its investment banking unit, but are down more than 20 percent over the past two years and are off more than 40 percent since 2008.
Executive pay will continue to be a bone of contention for investors if CEOs and top executives are unfairly rewarded. Aaron says executive pay deserves investor ire particularly when a firm files for bankruptcy or becomes engulfed in a scandal. Getting paid big money for strong performance is one thing; getting paid a lot for failure is an outrage.
"Shareholders of the world unite! Well done!" Henry says. The only way to seriously fix executive pay is to "have shareholders stomp their feet and have the press sort of humiliate the pigs at the trough relative to all their workers."