Citigroup's Stingy Shareholders

Across the country last night, from summer cottages in Connecticut to penthouse suites on Park Avenue, overpaid Wall Street executives and board members cried themselves to sleep. In the first use of the Dodd-Frank "say on pay" rule at a major American bank, shareholders of Citigroup (NYSE: C  ) voted against a pay plan that promised tens of millions of dollars for its CEO, Vikram Pandit, and his fellow directors.

How could they be so stingy?
At first, it's hard to understand why they would do something so extreme and malevolent. While 41 companies on the Russell 3000 index suffered such a fate last year -- including Hewlett-Packard, Jacobs Engineering, and Stanley Black & Decker -- Citigroup is only the 12th company on the S&P 500 to lose such a ballot since the rule was enacted in 2010. Certainly the bank's shareholders must have more sympathy than to shuttle Pandit into such an undistinguished crowd!

It's particularly hard to understand why they would do so when you consider how much Pandit has done for them. How could they not be content with the performance of the bank since he took over in 2007? Over the past five years, shares in the bank have fallen only 93%! That's a mere 87% worse than rival Wells Fargo (NYSE: WFC  ) and 77% worse than JPMorgan Chase (MYSE: JPM), and neither of their CEOs was subjected to a similar display of public humiliation.

C Chart

C data by YCharts

Now I know what you're probably saying: "Geez, a negative-93% return doesn't seem very good to me." The problem with this perspective, however, is that it's far too pessimistic. How about adopting a "glass half-full" approach, and thanking Pandit and his friends on the board for leaving you 7% of your original investment to spend at your leisure? I mean, come on, money doesn't grow on trees -- somebody had to pay Pandit $80 million for the purchase of his hedge fund at the height of the market.

Not to mention that things are clearly looking up at the lender. While the S&P 500 was down 1.1% last year, shares in Citigroup were down only an additional 45.2%. That's basically a rounding error when compared with the preceding three years. And it was only twice as bad as the returns at JPMorgan, and four times as bad as the returns at Wells Fargo. Lest we forget, moreover, that shares in Citigroup did outperform Bank of America (NYSE: BAC  ) in 2011 by nearly 15%.

On a more serious note ...
All joking aside, investors everywhere should applaud the move by Citigroup's shareholders. At Main Street jobs across the country, employees are held accountable for their performance. Why should it be any different on Wall Street? Call me old-fashioned, but where I come from, no business owner would pay a manager tens of millions of dollars to squander wealth.

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Fool contributor John Maxfield owns shares in Bank of America. The Motley Fool owns shares of Citigroup, Bank of America, and JPMorgan Chase and has created a covered strangle position in Wells Fargo. Motley Fool newsletter services have recommended buying shares of Wells Fargo. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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  • Report this Comment On April 18, 2012, at 9:39 PM, dcervan123 wrote:

    Remember The Reverse Split... You took my shares away, You'll never get my vote!...

  • Report this Comment On April 19, 2012, at 3:16 AM, InvestWhatWorks wrote:

    You're being unfair to Pandit. Yes, he became CEO in December 2007 (and I believe he joined Citi itself in 2006... maybe?). And yes, the stock has fallen enormously since then. But he wasn't his decision making that caused Citi's stock to have that enormous drop. The problems at Citi were years (decades?) in the making. He's just the guy who sat in the CEO-chair right as everything was hitting the fan.

    Criticisms for his of the decisions he made in the wake of financial crisis are valid, but Citi stock would have fallen no matter who became CEO in December of 2007. Nobody could have stopped it from happening at that point in time. Previous leadership at Citi made damn sure of that. Considering all of the problems at Citi, all in all, Pandit has done a very good job of salvaging that sinking ship.

    That said: If I was a Citi shareholder (use to be last year, but not anymore), I also wouldn't vote to raise his pay (and especially wouldn't vote to raise the pay of THAT board). I don't blame Pandit for the massive problems at Citi, but that doesn't mean I have to approve any pay raises right now. Pandit got his pay raise last year.

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