If there’s one thing this cantankerous nation can seem to agree on these days, it’s our hatred of too-big-to-fail banks and their well-compensated, if less-than-fearless, leaders. Likewise, the American media is rarely concordant, but they were unanimously gleeful at the news that Citi’s shareholders had voted against the banks decision to lavish its CEO, Vikram Pandit, with $15 million in compensation in 2011.
After all, under Pandit’s watch, shares in the bank have tumbled 80%, and whille the S&P gained 6% in 2011, Citi’s stock price dropped 20%. Even those who wouldn’t normally get up in arms about excessive executive pay were dismayed by the seeming total lack of connection displayed between pay and performance in Pandit’s compensation package.
Robert Lenzer at Forbes called the vote “an uprising against piggish CEO pay, at last.” He reminded readers that Pandit inaugurated his tenure at Citi only after the bank spent $800 million to purchase Pandit’s former hedge fund, a deal which personally netted Pandit $165 million. Citi had to take huge losses leading up to the fund’s shuttering but,
“Citi’s pusillanimous board of directors rewarded Pandit by making him CEO and awarding him a “Signing Bonus” of $36.7 million. Imagine– a “signing bonus” to a top Citi employee, who had lost the banks hundreds of million, of $36.7 million. This is an abuse of the private enterprise system, which should be Document One in the People VS. Corporate Greed.”
Pandit’s supporters defend him by pointing out that the CEO only took a $1 salary in 2009 and 2010, but considering how much dough Pandit has wrung from Citi in his career, angry shareholders are taking little comfort in that fact. As Ben Walsh wrote in Reuters, “For all the grandstanding about Pandit’s 2009 salary of $1, Citi shareholder’s seem to be at long last realizing that their financial returns for the last five years are a far cry from Pandit’s.”
But a media backlash may be the least of Citi and Pandit’s problems. Ohio State University Law and Finance Professor Steven Davidoff believes that Citi will surely face a shareholder lawsuit, which unlike the non-binding “say-on-pay” vote, could have ramifications beyond a PR firestorm. He writes that many other companies have been sued by shareholders after they ignored say-on-pay votes. He adds
“Citigroup is such a big target, the chances of it escaping such a suit are very low unless Mr. Pandit gives back all of this compensation. But I suspect that Mr. Pandit will not be in such a generous spirit.”
And many believe Citi’s board could have sidestepped this altogether had they been more responsive to the institutional investors who own 62% of Citi’s stock. As John Carney of CNBC.com points out, “This wasn’t some sort of populist uprising of the ’99 percent’ voting against the ’1 percent.’ It was money turning against money.” And had the board taken the time to negotiate and address these sophisticated investors’ demands, the whole mess could have possibly been avoided.
Perhaps there is still time for Citi’s board to placate investors. Citigroup chairman Richard D. Parsons said he’d consult with them to better understand their concerns. But given all the potential headaches that this incident will create, it looks like a bad 2012 won’t be getting better any time soon for America’s most maligned too-big-to-fail firm. And if zombie banks like Citi weren’t such a drain on the economy, Americans might be taking a little bit more pleasure at their misfortune.