“Hello, Ernesto. This is Vikram, you know that red Ferrari 458 I ordered a few months ago?”
“Yes, Mr. Pandit, but of course. It will certainly be a great addition to the one you bought last year, and the vintage 1963 250 GTO we sold you with all those stock options you had been awarded.”
“Well, things are changing, and you’re going to have to cancel the Order. It seems my Board is more than a little unhappy with my salary.”
As Jessica Silver-Greenberg and Nelson D. Schwartz reported yesterday, Citigroup’s shareholders voted against the company’s proposed compensation plan, which would have paid Pandit $15 million. In effect that’s $15 million more than all shareholders combined, as earnings last year were flatter than a pancake.
Shareholders rarely have the opportunity to weigh in. Indeed, the negative vote is the first time in which a large financial firm’s shareholders voted nay on the CEO’s compensation. In fact, such votes are rare at all companies—last year just 42 out of more than 3,000 firms voted against the executive compensations packages their boards had drawn up. Its called agenda control folks. Keep it off the agenda, settle things in those “smoked-filled rooms.” Hopefully, Citigroup’s shareholders’ conduct is a harbinger of votes to come.
Keep in mind: Citigroup’s shareholders—75 percent of whom voted—aren’t your average Joes. They are in many cases fund managers of one kind or another. But regardless, the tide may just be turning. If Citigroup shareholders can stand up and be counted, there is no reason those of every bank in the country can’t follow.
Strangely, the shareholder vote is not technically binding, but they have presented Citigroup chairman Richard D. Parsons with quite the dilemma. Approve the pay package and risk enraging shareholders; decrease it and your executives fly off the handle. But kudos to our shareholders of the week for putting a foot down and forcing this dilemma. (Or maybe it’s not a dilemma—what’s one POed executive versus the majority of your shareholders?)
Hopefully in a few years we will look back at this vote as the first bite towards eating the elephant of inflated corporate compensation. Paging Bank of America, whose annual shareholder meeting is less than a month away… Why not tear a page out of the Citigroup Shareholder Manual?