Citigroup to limit executive pay when investor returns fall

New York

CITIGROUP Inc's board changed the way the lender calculates performance pay for executives after receiving some complaints. The largest proxy advisers were not swayed.

Executives can now earn more than 100 per cent of their annual performance-based compensation only if shareholder returns are positive, the New York-based bank said on Wednesday in a regulatory filing. The plan is designed to ensure executives don't get bonuses that are bigger than those initially awarded if total shareholder returns fall over a three-year period. The changes are reflected in performance share units granted in February.

Citigroup "heard some concerns from other stakeholders regarding Citi's new performance share unit" programme after submitting its proxy last month, according to the filing. The board's compensation committee "remains fully committed to a robust pay-for-performance executive-compensation programme".

Banks continue to face investor backlash over pay policies blamed for rewarding behaviour that helped cause the financial crisis. Citigroup overhauled its 2012 compensation plan after shareholders rejected the bank's 2011 package amid complaints it allowed then-chief executive officer Vikram Pandit to collect millions of dollars too easily.

Glass Lewis & Co and Institutional Shareholder Services, two of the largest proxy advisers, recommended clients vote against the plan, according to separate reports on Wednesday.

"Citigroup's pay programme is ultimately discretionary and the compensation committee's decision to award CEO Corbat his highest pay package to date is not justified by the company's lagging stock price performance," ISS said in the report, referring to Mike Corbat.

Citigroup increased Mr Corbat's compensation 27 per cent to US$16.5 million for 2015 as the lender posted the highest profit since 2006 and passed the Federal Reserve's annual stress test. That compares to the US$16 million awarded to Bank of America Corp CEO Brian T Moynihan and the US$27 million given to JPMorgan Chase & Co's Jamie Dimon.

Citigroup shares fell 4.4 per cent last year, trailing the 1.6 per cent decline for the KBW Bank Index, which tracks 24 of the largest US commercial banks. Citigroup's shares are among the worst performing in the index this year, declining 19 per cent, amid worries about slow global growth and turbulent emerging markets.

Citigroup chairman Michael O'Neill said the board disagrees with Glass Lewis and ISS. He cited differences in the makeup of the peer group, the board's desire to keep some measure of discretion and a belief that pay should be "heavily weighted" to judging performance for the award year rather than over a three-year period.

"We believed that it was important to reward the team based on the progress made, knowing that the team has more work to do," Mr O'Neill said in an emailed statement. BLOOMBERG