Citigroup's Historic Shareholder Vote Is Non-Binding

Apr 19, 2012
Originally published on April 19, 2012 3:11 am
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Wall Street is still reacting to this week's vote by shareholders of Citigroup. At its annual meeting on Tuesday, 55 percent of the company's shareholders voted against a $15 million pay package for CEO Vikram Pandit, as well as packages for other executives. We called Robert Jackson, associate professor at Columbia Law School. He was also an advisor to senior treasury officials during the financial crisis. Good morning, Professor Jackson.

ROBERT JACKSON: Good morning, Lynn.

NEARY: Now, this vote has actually been called historic. Why is it so significant?

JACKSON: This is really the first time that the new shareholder vote authority provided by the Dodd-Frank Act has been used by public company shareholders in a large high-profile public company to turn away the proposed pay package of a board of directors, and there's something else I think that's striking about it. I think shareholders across Wall Street have really noticed investors have been talking about how the board of directors of Citigroup could have lost this vote just two years after such stringent government oversight over its pay packages.

NEARY: Tell us about the Dodd-Frank Act

JACKSON: The Dodd-Frank Act requires that all public companies hold a shareholder vote on executive pay, and what it says is that shareholders should be given a chance to vote up or down on executives' compensation in the annual proxy statement that proceeds each company's annual meeting. Now, what the provision also says is that the votes are non-binding, so that boards of directors are not required to take any particular steps in response to the vote.

NEARY: Well, I was gonna ask you about the fact that this vote was non-binding, because it does raise the question, so what then, what effect is this really gonna have?

JACKSON: Well, I think it will have a very significant effect, and I think the comments both from investors and from members of the Citigroup board are very telling in that respect. Investor shareholders have said that they're deeply trouble by the fact that the Citigroup board couldn't assemble a pay proposal that could meet with shareholder approval. So even though the votes are non-binding, I think they'll have a very significant influence on the board's thinking about pay at Citigroup, and I think it's likely to have an effect on the way other boards of directors are thinking about compensation matters because I think there are other banks out there who are concerned about whether the shareholders will reject their pay packages too.

NEARY: Let's talk about CEO Vikram Pandit. Two years ago he took a token salary of one dollar, but that doesn't even seem to have any influence on the shareholders' vote here. So what does this mean for him exactly?

JACKSON: First, Pandit should not expect that shareholders will take the view that because he took a dollar two years ago, he should paid at the top of the industry this year. Second, I think one thing to take away for the whole Citigroup board of directors is what possibly could have happened here, that they didn't talk with their shareholders thoroughly enough to get out ahead of this vote. We've been having these votes under Dodd-Frank now for a year and a half.

Ninety-eight percent of public companies have their pay approved in situations like this one. It's very rare for shareholders to say no, and the reason isn't because shareholders aren't paying attention; it's because boards of directors reach out to shareholders and find out what they need to do to get the shareholders to vote to approve the plan.

NEARY: What might we see happening in the future with these compensation packages? Are they going to come down considerably, is there a number that you could throw out that might seem reasonable, or is that something you can't say at this point?

JACKSON: I think it's impossible to know what the right number is for CEO pay, and if you ask shareholders, they'll agree. The investors who voted down Pandit's pay didn't vote no because 14.9 million is too high. They voted no because the company isn't performing well enough to justify a salary at the top of the industry, and my sense is that one thing that we can take away here is that companies that don't do a good job of reaching out to their shareholders and figuring out whether or not what they've proposed makes sense, can expect shareholders to fight back at the annual meetings, and that's what we saw at Citigroup and I won't be all surprised if we see it elsewhere on Wall Street in the coming weeks.

NEARY: Robert Jackson is associate professor at Columbia Law School and a former advisor to the Treasury Department. Thanks so much, Professor Jackson.

JACKSON: Thank you. Transcript provided by NPR, Copyright NPR.