Responding to anger over executive pay, Citigroup is changing the way it calculates the bonuses given to top executives. It announced on Thursday that part of the $11.5 million in compensation awarded to the new chief executive, Michael L. Corbat, would be closely tied to performance. So far, though, the changes are only affecting a small portion of Citigroup’s executive compensation packages without reining in the big bonuses that have become one of the hallmarks of Wall Street.
Citigroup has been a prominent symbol in the debate over the outsize Wall Street compensation. The changes come less than a year after Citi shareholders voted against a $15 million pay package for Vikram S. Pandit, then the chief executive. That vote was the first time shareholders had united to oppose compensation at a giant financial firm.
In April, the bank’s powerful chairman, Michael O’Neill, took the reins of a five-member committee on executive pay. He said in a regulatory filing Thursday that the committee had come to its new formula after meeting with investors who hold more than 30 percent of the bank’s total outstanding shares.
A portion of the pay packages given to Citi’s executive will now be linked to the company’s performance relative to other big banks. “When our shareholders spoke last year about Citi’s compensation structure, we listened,” Mr. O’Neill said in the filing.
Nell Minow, a shareholder advocate at GMI Ratings, said the new approach was “far from perfect, or even good, but it’s less terrible than it used to be.”
Citi’s board members will continue to approve base salaries, cash bonuses and deferred stock given to top Citi executives, the same way they were in the past. But now a new segment of the pay, called performance share units, will be linked to the new metrics. For 2012, Mr. Corbat was awarded $3.1 million in performance share units. That amounts to 27 percent of his total $11.5 million pay package.
The new formula still puts Mr. Corbat at a similar compensation level to his peers. Mr. Corbat is being paid the same amount for 2012 that JPMorgan Chase recently said it was handing to its chief executive, Jamie Dimon. JPMorgan’s board cut Mr. Dimon’s pay from $23 million a year earlier after the bank suffered a multibillion-dollar trading loss. Bank of America announced this week that its chief executive, Brian T. Moynihan, would receive $12.1 million, a raise from 2011.
United States politicians and regulators have chosen not to impose significant new rules on how company’s determine their executive pay, despite widespread public anger about the ballooning bonuses across corporate America in the wake of the financial crisis.
The 2010 Dodd-Frank Act for financial regulation mandated that banks offer shareholders a chance to approve their executive compensation plans. But the votes are not binding.
Last April, 55 percent of Citi’s shareholders voted against the bank’s bonus packages, after compensation experts criticized the bank for leaving the pay up to the discretion of the board. The vote was seen as a stinging rebuke for the bank, which has struggled to recover from the financial crisis.
Citigroup has been steadily working through soured loans, whittling costs and unwinding unprofitable business lines. As part of its stark cost-cutting, the bank also announced in December that it would slash 11,000 jobs worldwide.
Since Citi’s shareholders rejected Mr. Pandit’s compensation, Citi has overhauled its top management. In a move that surprised Wall Street, Mr. O’Neill abruptly unseated Mr. Pandit and his top lieutenant, John P. Havens. Mr. Corbat, who was chosen to take over as chief, has vowed to continue the cost-cutting and refocusing that began under Mr. Pandit.
The company’s filing Thursday laid out the formula that will be used to calculate the new performance share units, incorporating both the performance of the company’s stock compared with similar banks, and the so-called return on assets, a measure of a bank’s profit relative to its overall size.
Anne Simpson, the director of corporate governance for the country’s largest pension fund, the California Public Employees’ Retirement System, said she was glad the bank had responded to the shareholder vote. But she said she was concerned that it had not adequately taken into account the amount of risk the bank was taking.
“We’d like to make sure that the incentive structures aren’t focusing on revenues and returns without thinking about risk, because that’s how we got ourselves into the financial crisis,” said Ms. Simpson.
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Citigroup Toughens Executive Bonus Rules
