Citigroup Inc (NYSE:C, $C) is a diversified financial services holding company, provides various financial products and services for consumers, corporations, governments, and institutions worldwide. It operates through two segments, Citicorp and Citi Holdings. It is one of the stocks in my portfolio. Their annual meeting is coming up on April 26, 2016. ProxyDemocracy.org had collected the votes of zero funds when I checked. I voted AGAINST the pay plan, compensation committee, Michael L. Corbat who owns no shares, and the Omnibus Stock Plan. I voted FOR all other proposals, including the shareholder proposals. I voted with the Board’s recommendations 52% of the time. View Proxy Statement.
Read Warnings below. What follows are my recommendations on how to vote the proxy in order to enhance corporate governance and long-term value.
Citigroup Inc: ISS Rating
From Yahoo! Finance: Citigroup Inc.’s ISS Governance QuickScore as of Apr 1, 2016 is 6. The pillar scores are Audit: 10; Board: 8; Shareholder Rights: 3; Compensation: 4. Brought to us 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: Audit and Board.
Citigroup Inc: Compensation
Citigroup Inc’s Summary Compensation Table shows the highest paid named executive officer (NEO) was James Forese, President, Citi, CEO, Institutional Clients Group at $16.2M. I’m using Yahoo! Finance to determine market cap ($119B) and Wikipedia’s rule of thumb regarding classification. Citigroup Inc is a large-cap company. According to the Equilar Top 25 Executive Compensation Survey 2015, the median CEO compensation at large-cap corporations was $10.3M in 2014, so pay is well above that amount. Citigroup Inc’s shares underperformed the S&P 500 over the most recent one, two, five and ten year time periods.
The MSCI GMIAnalyst report I reviewed gave NCR Corporation an overall grade of ‘D.’ According to the report:
- Unvested equity awards partially or fully accelerate upon the CEO’s termination allowing 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, essential for investors to assess the rigor of incentive programs.
- The company pays long-term incentives to executives without requiring the company to perform above the median of its peer group. Incentive plans that pay for mediocre performance undermine the linkage between pay and performance.
- 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.
Similarly, Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measures Citigroup Inc’s wealth creation in comparison to other widely held issuers. “Needs attention” appears to be as low as they go. That’s the score they assigned to Citigroup Inc. On the actual compensation advisory vote, Egan-Jones concludes:
After taking into account both the quantitative and qualitative measures outlined above, we believe that shareholders cannot support the current compensation policies put in place by the Company’s directors. Furthermore, we believe that the Company’s compensation policies and procedures are not effective or strongly aligned with the long-term interest of its shareholders. Therefore, we recommend a vote “AGAINST” this Proposal…
Our qualitative review of this Company’s compensation has identified one minor issue: the CEO’s salary at $1,500,000 exceeds the $1 million dollar deducibility limit imposed by section 162m for salaries and non-qualified incentive payments. Failure to abide by IRS 162m rules results in loss of deductibility for the compensation in question and possibly increased and unnecessary tax payments. While this issue is not sufficient to trigger a negative vote alone, it does impact the Company’s overall compensation score, we would recommend the board investigate and consider alternative means of compensation for the CEO and any other 162m covered NEOs who exceed this limit in the future.
More from As You Sow. Because of the issues noted above, including above median pay and underperformance, I voted against the pay plan and compensation committee up for election: Michael E. O’Neill, Judith Rodin, Diana L. Taylor, and William S. Thompson, Jr.
Citigroup Inc: Accounting
I have no reason to believe the auditor has rendered an inaccurate opinion, is engaged in poor accounting practices, or has a conflict of interest — so voted to confirm.
Citigroup Inc: Board Proposals
As stated above, I voted against members of the compensation committee. I am delighted that Egan-Jones Proxy Services also recommends voting against the compensation committee. From their report:
Egan-Jones believes that the Compensation Committee should be held accountable for such a poor rating and should ensure that the Company’s compensation policies and procedures are centered on a competitive pay-for-performance culture, strongly aligned with the long-term interest of its shareholders and necessary to attract and retain experienced, highly qualified executives critical to the Company’s long-term success and the enhancement of shareholder value.
As I have mentioned previously on many occasions, I like directors representing me to have skin in the game. If they own stock, they are more likely to look out for my interests as a shareholder. See evidence at Bhagat, Sanjai and Carey, Dennis C. and Elson, Charles M., Director Ownership, Corporate Performance, and Management Turnover. I voted against Michael L. Corbat who has served on the board for over three years but, according to GMIAnalyst, owns no shares.
Egan-Jones also recommends voting against Approval of an Amendment to the 2014 Stock Incentive Plan Authorizing Additional Shares.
After taking into account the maximum amount of shareholder equity dilution this proposal could cause, as well as both the quantitative and qualitative measures outlined above, we believe that shareholders should not support the passage of this plan as proposed by the board of directors. We recommend the board seek to align CEO pay more closely with the performance of the company and work to reduce the cost of any similar plan that may be proposed in the future. Therefore, we recommend a vote “AGAINST” this Proposal.
I took their recommendation and voted Against proposal #4 to Amend Omnibus Stock Plan.
With regard to #5, Amend Executive Incentive Bonus Plan, I’m happy to again take the recommendation of Egan-Jones and vote For:
We believe that the approval of the amended and restated 2011 Citigroup Executive Performance Plan will help the Company to attract, retain and motivate its executive employees whose efforts are essential to its success. We recommend a vote “FOR” this Proposal.
Citigroup Inc: Shareholder Proposals
Egan-Jones recommends against all the shareholder proposals.
Item #6, Demonstrate No Gender Pay Gap, a proposal from my friends at Trillium, requesting Citigroup Inc prepare a report by September 2016, omitting proprietary information and prepared at reasonable cost demonstrating the company does not have a gender pay gap. From the board’s response, it looks like they are already collecting most of the information required for such a report. Let’s see it. See PX14A6G exempt solicitation from Trillium. Vote For.
#7, Report on Lobbying Payments and Policy, comes from CtW Investment Group. I generally vote in favor of all such proposals if they are well crafted. We should encourage transparency and accountability in the company’s use of corporate funds to influence legislation and regulations to ensure company assets are not used for objectives contrary to the Company’s long-term interests. CtW’s supporting statement cites examples where this appears to be the case. Vote For.
#8 Appoint a Stockholder Value Committee, was submitted by Bart Naylor, requesting a committee composed exclusively of independent directors to address whether the divestiture of all non-core banking business segments would enhance shareholder value. I agree, mega-banks such as Citigroup may not simply be ”too big to fail,“ but also ”too big to manage“ effectively so as to contain risks that can spread across Citi’s business segments. Frauds resulting in more than $7 billion in shareholder-paid ﬁnes suggest management imperfection.
See Proposal at JPMorgan and Citigroup Raises Prospect of Split-Up.
I believe Congress should not have repealed the Glass-Steagall Act. However, we can start restoring it one company at a time. The proposal recommends the board explore options to split the ﬁrm into two or more companies, with one performing basic business and consumer lending with FDIC-guaranteed deposits, and the other businesses focused on investment banking. I also think it is likely that breaking up the bank would result in a considerably higher share valuation. Vote For.
#9 Claw-back of Payments under Restatements, submitted by John Chevedden to provide that a substantial portion of annual NEO compensation be deferred and be forfeited, at the discretion of Board, to help satisfy any penalties associated with any law violations; and that this annual deferred compensation be paid to the ofﬁcers no sooner than 10 years after the absence of any monetary penalty. These amendments should operate prospectively. Frankly, I’m tired of billions of dollars in penalties coming out of the company (and shareholders) without any consequences to executives. Vote For.
#10 Adopt a Policy Prohibiting the Vesting of Equity-Based Awards, sponsored by the AFL-CIO’s Reserve Fund, to adopt a policy prohibiting the vesting of equity-based awards for senior executives due to a voluntary resignation to enter government service (a ”Government Service Golden Parachute“), providing a windfall to executives that are unrelated to their performance. Vote For.
Citigroup Inc: CorpGov Recommendations Below – Votes Against Board Position in Bold
In addition to the votes reported on ProxyDemocracy.org, Proxy Insight reported on Teacher Retirement System of Texas (TRS). TRS voted with management on all board sponsored proposals except the pay plan. They voted in favor of two shareholder proposals; the one to report on lobbying and the one on prohibiting accelerated vesting for entering government service.
Citigroup Inc: CorpGov Recommendations Below – Votes Against Board Position in Bold
Citigroup Inc: Issues for Future Proposals
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.
- Proxy access provision, but limited to a group of up to 20 stockholders, holding at least 3% of the outstanding common stock for at least three years may include in the company’s proxy materials director nominees constituting up to the greater of two directors or 20% of the board. These are provisions which I agreed to last year in order to withdraw my proposal. However, I warned Citigroup Inc I would likely be back to enhance their adopted bylaws.
Citigroup Inc: Mark Your Calendar
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 16, 2016. The proposal and its proponent must satisfy all applicable requirements of Rule 14a-8.
388 Greenwich Street
New York, NY 10013
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 5 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 1% if our economy is not to become third world. The rationale for peer group benchmarking is a mythological market for CEOs.
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