Citigroup – Shareholder Ratification of Executive Compensation (2007)
Resolved: That stockholders of Citigroup Inc. urge the board of directors to adopt a policy that Citigroup stockholders be given the opportunity at each annual meeting of stockholders to vote on an advisory resolution, to be proposed by Company’s management, to ratify the compensation of the named executive officers (“NEOs”) set forth in the proxy statement’s Summary Compensation Table (the “SCT”) and the accompanying narrative disclosure of material factors provided to understand the SCT (but not the Compensation Discussion and Analysis). The proposal submitted to stockholders should make clear that the vote is non-binding and would not affect any compensation paid or awarded to any NEO.
Shareholder Supporting Statement
In our view, senior executive compensation at Citigroup has not always been structured in ways that best serve stockholders’ interests. For example, in 2005 Chairman and CEO Charles Prince received $87,710 for tax gross-ups, while former Chairman Sanford Weill received tax gross-ups of $900,981. Mr. Prince’s 2005 pay package included a $12 million bonus and a restricted stock award valued at nearly $10 million.
We believe that existing U.S. corporate governance arrangements, including SEC rules and stock exchange listing standards, do not provide stockholders with enough mechanisms for providing input to boards on senior executive compensation. In contrast to U.S. practices, in the United Kingdom, public companies allow stockholders to cast an advisory vote on the “directors’ remuneration report,” which discloses executive compensation. Such a vote isn’t binding, but gives stockholders a clear voice that could help shape senior executive compensation.
Currently U.S. stock exchange listing standards require stockholder approval of equity-based compensation plans; those plans, however, set general parameters and accord the compensation committee substantial discretion in making awards and establishing performance thresholds for a particular year. Stockholders do not have any mechanism for providing ongoing feedback on the application of those general standards to individual pay packages. (See Lucian Bebchuk & Jesse Fried, Pay Without Performance 49 (2004))
Similarly, performance criteria submitted for stockholder approval to allow a company to deduct compensation in excess of $1 million are broad and do not constrain compensation committees in setting performance targets for particular senior executives. Withholding votes from compensation committee members who are standing for reelection is a blunt and insufficient instrument for registering dissatisfaction with the way in which the committee has administered compensation plans and policies in the previous year.
Accordingly, we urge Citigroup’s board to allow stockholders to express their opinion about senior executive compensation at Citigroup by establishing an annual referendum process. The results of such a vote would, we think, provide Citigroup with useful information about whether stockholders view the company’s senior executive compensation, as reported each year, to be in stockholders’ best interests.
We urge stockholders to vote for this proposal.