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.
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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