What the Pandit Debacle Means for Citigroup

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55% of the shareholders of Citigroup (NYSE: C) rebuffed its Chief Executive Officer, Vikram Pandit, by rejecting the executive compensation package put to them for an advisory vote.  Although not binding on the Board of Directors, Richard Parsons, who recently bailed as Chairman of the Board, said there would be a meeting with shareholders to discuss the rejection, and, presumably, what they would recommend doing about Pandit and the other affected executives.  This meeting will probably be with representatives from among the top 15 institutional holders (34%), the top 15 mutual fund holders (13%), and possibly with some additional State pension fund investors, although Statens Pensjonfond (1%) and TIAA-CREF (1.2%) are among the top group and could be counted on by the others to represent their interests just fine.

This must be sad news for Pandit, whose salary for two years was a symbolic $1 while he turned Citi around sufficiently for it to turn a profit.  Admittedly, he did not need to stand in the soup lines during that time, rely on subsidized meals at the Citi cafeteria, or free meals on the Citi jet.  He sold his Old Lane Partners hedge fund to Citi and netted about $165 million shortly before he arrived at Citi.  Since then, he has received, the shareholders might add, but not earned, his salary and his retention bonuses in the past two years, much of which was in the form of deferrals and dependent on future results.        

Meanwhile, Vikram has put his Greenwich, Connecticut home up for sale. This move could mean a number of things related to his disappointment upon the rejection of his $15 million compensation package for this year by the shareholders.  It could mean that he is beginning to bail on Citi, like Parsons, and Chuck Prince before his arrival.  This seems unlikely since Pandit has become the face of Citi and has received approval if not accolades for his performance from many, if not most recently his shareholders.       

The listing for sale could mean that Pandit is liquidating unproductive personal assets so to hunker down until his package, whatever it may be, is approved by the Board.  This seems unlikely because sales of multi-million dollar homes take time, even in Greenwich, one of the wealthiest communities on the planet, where many Wall Street Bonus Boys have them.  Indeed, the combination of high price and bonus squeeze made the time lag between listing and sale even longer.  So Pandit's Citi compensation will likely be determined by the Board, even if the Board goes through extended vetting with the shareholders, long before that Greenwich sale.         

More likely putting the Greenwich home up for sale is another symbolic gesture like the $1 per year salary.  It signals to the shareholders who rejected his 2012 compensation package that he will not be week-ending in Connecticut.  Rather, he will be available and hard working either at Citi headquarters in New York or from the co-operative apartment on Manhattan’s Upper West Side that he bought from Tony Randall's estate for $17.9 million in 2007.  It also signals to Citi staff that more dedicated work is expected of them, at least the appearance of it, and apparent sacrifices like the one Pandit is making.        

I use "symbolic," "appearance" and "apparent" not as pejoratives.  I use them rather to acknowledge the obvious, that Pandit and his staff have worked diligently and doggedly over the past years.  However, not even an obvious display of diligence and hard work is usually enough.  Though often without that, even success may not be ascribed to the efforts of those who achieved it.  In any event, nothing is enough without the results.  Nothing succeeds without success.  Nothing succeeds like success.  It is the cornerstone of reward.  But success is always a matter of perception and comparison between differences.  For Citi the comparison is of its somewhat raggedy present with its illustrious past.  For this is the year that it highlights all its glorious past involvements and achievements.  This is the 200th Anniversary of Citi's founding.  Unfortunately, its immediate past is a chronicle of foundering and Pandit's efforts to raise up her Citiship after the departure of the Prince, who put it down with his insistence of staying the sub-prime course.


Given that Pandit has received much of his compensation from Citi in the form of deferrals, especially common stock and options, he must personally rely therefore on increasing the shareholder value of Citi.  He should be expected to stay the course and Citi too.  That is exactly what Citi is signaling with the Board's continuation of the penny per share quarterly dividend, even though quarter results ($1.11/per share) were better than the Street expected ($0.95).  That signal is not entirely of Citi's own making since its bid to lift capital and dividend distribution constraints failed earlier this year when it failed its stress test. Perhaps, that failure and the resulting continuation of the penny per share dividend was the motivation for shareholders to put Pandit's pay in limbo.  If so, I should hope it is merely another symbolic signal. 

I also hope it is not a signal that the Corporate Governance Crowd is trying to politicize executive compensation. If it ever comes into play, the SEC regulation required by Dodd-Frank will require disclosing the ratio of top dogs to the pack. Meanwhile shareholders will have their chance next week to give either signal to Wells Fargo’s John Stumpf, whose compensation package ($17.9 million, $6 million of which was cash) was higher than Pandit's ($15 million, of which $7 million would have been cash), and in May to give either signal to JP Morgan Chase's Jamie Dimon whose compensation package ($23 million, of which $6 million is cash)  was much higher, on the come at least, than Pandit's or to Bank of America (NYSE: BAC)'s Brian T. Moynihan ($8million, of which $950thousand is cash) whose is much lower than Pandit's, pursuant to the requirement of the SEC proxy rules that companies seek such advice from their shareholders.   U.S. Bancorp's Richard K. Davis' in line and unremarkable compensation package ($13.6 million, of which $3.7 million is cash) was presented to shareholders this week.

Staying the course is also the message of Michael O'Neill's appointment to Chairman of the Board to replace Parsons.  Although O'Neill owns only about 25,000 Citi shares, his experience aligns him well with Pandit's goals and those who are shareholders for the long haul ahead.  He led Bank of Hawaii through a successful turnaround.  He gained like experience as Vice Chairman and Chief Financial Officer at Bank of America, and as Chief Financial Officer at Continental Bank.  He is Pandit's senior by ten years.  He did have to step aside once from CEO at Barclays Bank because of arrhythmic heartbeat.  That was more than ten years ago, however, well beyond the point of current concern. O'Neill's special experience will be a great help at Citi, and Pandit's continued presence, persistence and perspicacity is important, if not essential, to Citi's continuing upward climb. 

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