Citigroup Recalculates Pay Due to Pressure

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Citigroup CEO Mike Corbat

Source: web

This week, Citigroup rethought its executive pay plan and as a result of a rejection by its shareholders, revised its pay and bonuses for upper management – including the pay for its new CEO Mike Corbat.

Last year, its shareholders called the initial pay scale “overly generous” and demanded it fall in line according to stock performance and bank profits of its competitors. Citigroup will now paying its new CEO Mike Corbat $11.5 million for his work in 2012.

This announcement comes on the heels of Bank of America’s CEO Brian T. Moynihan own salary being announced. According to reports this week, he will receive an impressive 72% pay hike, which will total more than $12 million. Most of the Moynihan’s raise, however, is going to be found in an in crease in stock based compensation. Moynihan now becomes one of the highest paid – if not the highest paid bank CEO in the nation, according to new SEC filings by Bank of America. That said, in terms of of actual cash, both John Stumpf of Wells Fargo & Co will bring home $2 million more.

Michael O’Neill

It looks as though the board chairman, Michael O’Neill, led the charge of directors and other shareholders, who when combined, totaled about 30% of the Citigroup stock. One comptroller familiar with the package said the changes were “responsive to a number of the issues we raised”. Not only that, but it looks like this debate has been ongoing since at least this past August, when O’Neill met with those overseeing pension funds, which also owns close to seven and a half million shares of the bank.

Citigroup opted to not disclose its pay for its other executives. What it did say, however, was that its performance share units were valued at $3.14 million and had been awarded to Manuel Medina-Mora, the co-president. Another $1.95 million of the units was given to CFO John Gerspach.

Too Much Discretion

The first plan was rejected in non binding votes by shareholders in April 2011. Many say this was the beginning of the end of then – CEO Vikram Pandit. The plan was dismissed because many said directors were given too much leeway in dictating pay scales and for setting the standards too low for bank executives. This profit paying plan would have mean executives would earn exceedingly high salaries if the bank earned more than $12 billion in pretax profits over twenty four months. Remember, the bank surpassed that number in the two previous years, so there was really no challenge for those executives.

Now though, according to the new plan, cash will account for 30% of executive pay and will be based on what the company earns in assets and shareholder return. Not only that, but those numbers will be mirrored to the competition’s own pay to ensure they’re in line. This is good through at least 2015 and also includes another 40 percent to be paid as cash bonuses and 30 percent will be allowed as deferred stock. Of Corbat’s payment plan, $1 million is base salary, $4.18 million is cash bonus, $3.14 million is deferred stock and $3.14 million is in new “performance share units” which deliver cash payments depending on profits and stock performance compared with peers.

Despite the revisions, many say the new plan still doesn’t take into account an executive’s actual performance and that stock bonuses are given just for “showing up” each day. Paul Hodgson, a corporate analyst, explains that they pay plan, while it has its setbacks, also includes a few good elements, including a requirement that a strong performance must be sustained for longer periods.

They have done enough to check the boxes, basically,

Hodgson said. Another good addition is the new possibility that other banks could follow suit since it

…reduces the discretion of the board, a sore point for bank investors. At a lot of these financial institutions, people distrust the board, so moving away from discretion makes some sense,

Recalculated Pay

Corbat’s pay who was brought on board as CEO this past October, was recalculated based on the new formula. It’s based on his work to date as CEO along with his past performance with the bank’s European, Middle East and Africa regional branches. In the filing, the compensation committee made mention that Corbat worked “quickly” to finalize the budget for 2013 and cites him as the one who restructured the bank’s plans that include a $1.2 billion annual savings.

Remember, Corbat replaced Vikram Pandit after he was pushed out last year amidst controversy. He received a $1 salary for 2010 and just $128,000 for 2009. That’s the year Citigroup received a whopping $45 billion in government bailout money during the financial crisis. By 2011, though, he had received $15 million.

Brian Moynihan’s Role

Moynihan’s pay, while it could have been controversial, instead is now being seen as fair, especially considering he’s the one touted as the turnaround king. According to many, he “singlehandedly” turned the banking giant around when Kenneth Lewis vacated the position in 2010. At that time, the bank was in deep trouble from a number of avenues, mostly due to its acquisition of Countrywide Financial, which came with baggage that still haunts Bank of America, including a former CEO that’s had nothing but criminal and other legal problems since. It wasn’t an easy trip back, either.

Moynihan battled with shareholders during that first year, unable to appease any of them. It wasn’t until the summer of 2011, when he announced a settlement in many of the court cases, that the bank began picking up the pieces. Since then, the bank has made an impressive recovery, with a few hiccups. One of those hiccups was the infamous announcement that same year that it would begin charging bank customers a $5 debit and ATM fee. This is what’s cited as the turning point for millions of Americans abandoning their traditional banks in lieu of their credit unions and sparked a global Occupy movement that continues to this day.

So what do you think of all these multi-million dollar salaries and bonsues? Do any of the CEOs deserve it?

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About Author

David is a CPA and has spent the past decade as a financial adviser helping clients meet their fiscal objectives. With an appreciation for journalism, he has spent the past few years overseeing several financial columns as well as writing two previous finance blogs. He resides on the East Coast with his wife and two sons and has guided many through the recent recession while providing a no-nonsense approach to spending and saving.


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