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Will Citi Pay Vote Embolden Shareholders?

Despite being given a “say on pay,” shareholders have mostly declined to voice opposition to executive compensation. But experts say the high-profile rejection of Citigroup’s pay package may inspire investors in other companies to speak up.

On Tuesday, Citi’s shareholders rejected a compensation package for senior executives that would boost chief executive Vikram Pandit’s 2011 pay to $14.0 million from $1.  It was by far the most prominent company to be voted down by shareholders under the provision of the Dodd-Frank Act — 98% of pay packages were approved last year, says Glyn Holton, the executive director of the United States Proxy Exchange, a shareholder rights organization.

Although Citi’s board is under no obligation to honor what amounts to a nonbinding rebuke, the move may still encourage more investors to resist pay packages they feel are out of line with the company’s performance, analysts say.  “Shareholders should really feel motivated to recognize that there are severe issues at corporations,” says Holton. The move could lead to changes in the way other banks reward their executives going forward.  “We’re seeing greater empowerment of shareholders,” says Fabrizio Ferri, a professor of accounting at Columbia Business School.

To be sure, a widespread shareholder uprising is unlikely, experts say. The votes, in general “don’t have much teeth,” so most pay packages will likely continue to get high marks as investors reject only the most extreme packages, says Ralph A. Walkling, executive director of the Center for Corporate Governance at Drexel University’s business school. “It’s the egregious situations where pay is totally out of line with performance that get rejected,” says Walkling.

While there have only been a few cases of investors rejecting pay packages, substantial numbers of no votes pushed some companies to change their practices, says Ferri. Some companies responded to investors’ requests for pay structures that are linked to rising profit levels as well as share prices. Others removed provisions that reimbursed taxes on severance packages and other perks, he says.   “It clearly puts pressure on the board to respond to the negative publicity,” says Ferri.


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    • I doubt many shareholders even bother to vote the proxies, even with the ease of doing it all on line these days. Most won’t even bother to read through the proposals at least.

      Vote down the pay package, it’s simple enough. And as mentioned above take a moment to at least glance through the other proposals. Vote against the PC ones, vote for the ones that let the board know you are watching. And vote against the “Directors” especially those that are “fluff” such as former CEO’s, Congressmen/Senators, ‘Elite Academics’ and obvious PC candidates.

      10 minutes of your time. It’s worth it.

    • The Board should look out for the shareholders not the CEOs that put them on the Board. Former Presidents and Senators should NOT be on any Boards. Political corruption in the Boardroom?

    • Shareholder proposals getting teeth? Hopefully not too many teeth. I’ve seen at least one shareholder “proposal” that read “proposal to put more transvestites on the board of directors and top management”. No kidding. Of course it used the more PC “gender identity non discrimination” language.

    • Those shareowners who want to change the way CEOs are paid should join proxyexchange.org. We’re getting teeth.

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