Citigroup Inc. (Citi, NYSE: C), a diversified financial services holding company, provides various financial products and services for consumers, corporations, governments, and institutions worldwide. Citi is one of the stocks in my portfolio. ProxyDemocracy.org had collected the votes of three fund families when I checked and voted. Their annual meeting is coming up on April 25, 2017.
I voted AGAINST pay and committee members, FOR all shareholder proposals. I voted with the Board’s recommendations 48% of the time. View Proxy Statement.
Citi: ISS Rating
From the Yahoo Finance profile: Citi’s ISS Governance QualityScore as of April 1, 2017 is 5. The pillar scores are Audit: 1; Board: 1; Shareholder Rights: 2; Compensation: 10. 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: Compensation.
Citi’s Summary Compensation Table shows the highest paid named executive officer (NEO) was Institutional Clients Group CEO and Citi President James Forese at $15.4M in 2016. I am using Yahoo! Finance to determine the market cap ($163.21B) and I am roughly defining large-cap as $10B, mid-cap as $2-10B, and small-cap as less than $2B. Citigroup 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 2015, so pay was well above that amount. Citigroup shares outperformed the S&P 500 over the most recent one and five year time periods, but underperformed in the most recent two and ten year time periods.
Egan-Jones Proxy Services takes various measures to arrive at a proprietary rating compensation score, which measure wealth creation in comparison to other widely held issuers.
Citi earned a compensation score of “Needs Attention,”
After taking into account both the quantitative and qualitative measures outlined below, 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… we recommend that clients WITHHOLD votes from the members of the Compensation Committee, Independent outside directors: Duncan P. Hennes, Michael E. O’Neill, Gary M. Reiner, Diana L. Taylor and William S. Thompson, Jr. 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.
I also voted “AGAINST” the say-on-pay item and the Compensation Committee members. The “Lake Woebegone effect,” where everyone is above average and the averages are recalculated upward every year, has to stop. We cannot just keep voting in favor of higher and higher pay packages.
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. However, Egan-Jones recommends voting against, favoring auditor rotation after seven years. I am not quite ready to set that as the bar but KPMG has apparently served as the “independent” auditor since 1969. I agree; that is too long to ensure true independence. I voted AGAINST.
Citi: Board Proposals
As mentioned above, I voted “Against” the pay package. As is my habit, when I vote against the pay package, I also vote against/withhold on the compensation committee. I voted against the accounting firm and For the one year frequency for votes on executive compensation.
Citi: Shareholder Proposals
Egan-Jones recommended against all the shareholder proposals.
#5 Gender Pay Equity. Citi claims current reports offer more than what is proposed by Arjuna Capital. I am not going to go though and compare. If they are already doing it, then they can just point to it if this measure passes. If it is not as thorough, this measure could move them to positive action on this important issue. I voted FOR.
#6 Report on the Feasibility of Splitting Citi. I like this proposal by Bart Naylor to study splitting the firm into two or more companies, with one performing basic business and consumer lending with FDIC-guaranteed deposit liabilities, and the other businesses focused on investment banking such as underwriting, trading and market-making. It was Citi that provoked revocation of Glass Steagall, which helped foster the Great Recession. I think it is fitting that Citi lead in retreating from a cliff that could almost inevitably lead us down into another abyss. Additionally, parts are often worth more than the whole. That seems likely to be the case at Citi. I voted FOR.
#7 Lobbying Disclosure Report. Like #5, Citi says it already has extensive reports on lobbying, so this measure by CtW is largely duplicative. Citi says climate change is a strategic priority, yet their membership supported the Chamber suite against the EPA to block the Clean Power Plan. Let Citi report more of the details. I voted FOR.
#8 Clawback Amendment. This proposal by John Chevedden would provide that a substantial portion of annual total compensation of Executive Officers be deferred and forfeited in part or in whole, at the discretion of Board, to help satisfy any monetary penalty associated with any violation of law regardless of any determined responsibility by any individual officer. Citi’s current clawback policy may be broader with respect to also including materially imprudent judgement but this would not impact that. It would certainly encourage the Board to deploy better risk assessment tools because it would reduce the instances of plausible deniability. I voted FOR.
#9 Government Service Golden Parachute. While I certainly want to encourage government service as does the proponent (AFL-CIO), equity awards vest over time as a performance incentive. Accelerating the vesting of such awards simply pays for work not performed. I voted FOR
As mentioned above, ProxyDemocracy.org had collected the votes of three funds when I voted. Proxy Insight will soon report additional votes but had not as of the date of my vote.Special meetings can only be called by shareholders holding not less than 25% of the voting power.
Citi: Issue for Future Proposals
Looking at SharkRepellent.net for other provisions unfriendly to shareowners.
- Special meetings can only be called by shareholders holding not less than 25% of the voting power.
- Proxy access lite. The provision limiting nominating groups to 20 members is problematic.
Citi: 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 388 Greenwich Street, New York, New York 10013. The proposal must be received no later than November 15, 2017. 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 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.