Citigroup Inc (C), which provides various financial products and services for consumers, corporations, governments, and institutions worldwide, is one of the stocks in my portfolio. Their annual meeting is coming up on 4/28/2015. ProxyDemocracy.org had the vote of three funds when I checked and voted on 4/21/2015. I voted with management 48% of the time and assigned Citigroup a proxy score of 48.
Citigroup ISS Rating
From Yahoo! Finance: Citigroup Inc.’s ISS Governance QuickScore as of Apr 1, 2015 is 4. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 2; Compensation: 8. Brought to you by Institutional Shareholder Services (ISS). Scores range from “1” (low governance risk) to “10” (higher governance risk). Each of the pillar scores for Audit, Board, Shareholder Rights and Compensation, are based on specific company disclosures. That gives us a quick idea of where to focus… compensation.
Citigroup’s Summary Compensation Table shows the highest paid named executive officer (NEO) was James Forese, CEO of the Institutional Clients Group, at about $15.9M in 2014. I’m using Yahoo! Finance to determine market cap ($159B) and Wikipedia’s rule of thumb regarding classification.
Citigroup is a large-cap company. According to Equilar (page 6), the median CEO compensation at large-cap corporations was $10.1 million in 2013, so Citigroup’s pay is substantially more than that, even factoring for inflation. Citigroup shares underperformed the S&P 500 over the most recent six month, one, two, five, and ten year periods.
The GMIAnalyst report I reviewed gave Citigroup an overall grade of ‘D.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination. Accelerated equity vesting allows executives to realize pay opportunities without necessarily having earned them through strong performance.
- The company has not disclosed specific, quantifiable performance target objectives for the CEO. Disclosure of performance metrics is essential for investors to assess the rigor of incentive programs.
- The CEO’s annual incentives did not rise or fall in line with annual financial performance, reflecting a potential misalignment in the short-term incentive design.
Pay of almost $16M for continued median performance combined with the above issues doesn’t seem right. I voted against the pay package and the stock plan.
Citigroup Board of Directors and Board Proposals
Generally, when I vote against the pay package I also vote against the compensation committee, since they recommend the pay package to the full board. Therefore, I voted against: William S. Thompson, Jr. (Chair), Michael E. O’Neill, Dr. Judith Rodin, and Diana L. Taylor. I voted against Franz Humor, who failed to attend at least 75% of board meetings.
I voted to ratify Citigroup’s auditor, KPMG LLP, since far less than 25 percent of total audit fees paid are attributable to non-audit work.
Shareholder Proposals at Citigroup
With regard to shareholder proposals. I am delighted to report Citigroup has agreed to support the proxy access proposal that I submitted. Proxy access is the most important reform needed at most companies. The terms we negotiated at Citigroup allow reasonable access to shareholders seeking to place our own nominees on the proxy. I urge you to vote for the proxy access proposal.
I also urge you to vote for CtW Investment Group’s proposal seeking a report on lobbying expenses. How do we know we agree with the expenses if we don’t know what they are?
Bartlett Naylor has introduced a very creative proposal that would require a substantial portion of pay to executives be held back for 10 years and be subject to a clawback to help satisfy any monetary penalty associated with any violation of law. This proposal deserves your vote as well. Why should shareholders pay for the wrongdoing of senior officers. If we can’t send them to jail for violating the law, at least take the fines out of their pay, not ours. The idea came from President William Dudley of the New York Federal Reserve. He called it a performance bond.
My good friend John Chevedden has proposed that a director should not be able to serve on the audit committee if they were a director at a company that filed for bankruptcy. I hate to vote against a friend. However, I once joined a corporate board in order to help the company through bankruptcy. Chevedden’s proposal addresses a real problem but the approach is too broad. We need to find better way to address the issue. I abstained.
Last, the AFL–CIO Reserve Fund’s proposal seeks a report of Golden Parachutes given to senior executives entering government service. I urge your vote For this proposal. For more information, see my previous post at Government Service Golden Parachutes at C, GS, JPM, MS.
CorpGov Recommendations for Citigroup – Votes Against Board Position in Bold
|1.1a||Michael L. Corbat||For||For|
|1.1b||Duncan P. Hennes||For||For|
|1.1c||Peter B. Henry||For||For|
|1.1d||Franz B. Humer||Against||For|
|1.1e||Michael E. O’Neill||Against||For|
|1.1f||Gary M. Reiner||For||For|
|1.1h||Anthony M. Santomero||For||For|
|1.1i||Joan E. Spero||For||For|
|1.1j||Diana L. Taylor||Against||For|
|1.1k||William S. Thompson, Jr.||Against||For|
|1.1l||James S. Turley||For||For|
|1.1m||Ernesto Zedillo Ponce de Leon||For||For|
|2||Ratify Auditor KPMG LLP||For||For|
|3||Ratify Executive Pay||Against||For|
|4||Amend Omnibus Stock Plan||Against||For|
|5||Adopt Proxy Access Right||For||For|
|6||Lobbying Payments and Policy||For||For|
|7||Clawback of Payments under Restatements||For||Against|
|8||Exclude from Board Audit Committee Any Director Who was Director of Company that Filed for Bankruptcy||Abstain||Against|
|9||Report of Vesting of Equity Awards for Entering Government Service||For||For|
Corporate Governance Issues at Citigroup
Looking at SharkRepellent.net for provisions unfriendly to shareowners:
- Action can be taken without a meeting by written consent (default Delaware state statute).
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
Citigroup Proxy Proposal Deadline for Next Year
Mark your Calendar to Submit Future Proposals:
Under SEC Rule 14a-8, a stockholder who intends to present a proposal at the next Annual Meeting of stockholders and who wishes the proposal to be included in the Proxy Statement for that meeting must submit the proposal in writing to the Corporate Secretary of Citi at the address on the cover of this Proxy Statement. The proposal must be received no later than November 19, 2015. The proposal and its proponent must satisfy all applicable requirements of Rule 14a-8.
Be sure to vote each item on the proxy. Any items left blank are voted in favor of management’s recommendations. (See Broken Windows & Proxy Vote Rigging – Both Invite More Serious Crime). I generally vote against pay packages where NEOs were paid above median in the previous year but make exceptions if warranted. According to Bebchuk, Lucian A. and Grinstein, Yaniv (The Growth of Executive Pay), aggregate compensation by public companies to NEOs increased from percent of earnings in 1993-1995 to about 10 percent in 2001-2003.
Few firms admit to having average executives. They generally set compensation at above average for their “peer group,” which is often chosen aspirationally. While the “Lake Woebegone effect” may be nice in fictional towns, “where all the children are above average,” it doesn’t work well for society to have all CEOs considered above average, with their collective pay spiraling out of control. We need to slow the pace of money going to the % if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.