Here's what The Wall Street Journal had to say yesterday morning about the loud "NO" they heard from 55% of Citigroup shareholders who refused to approve the executives' compensation package.
"Shareholders of Citigroup Inc. on Tuesday handed the bank a scathing rebuke, rejecting a board-approved compensation package for its senior executives that boosted Chief Executive Vikram Pandit's 2011 pay to $14.9 million from $1 a year earlier."
Although the Wall Street Journal article goes on to talk about shareholder discontent, the authors seem to want to point to unfairness or shortsightedness on the shareholders' part in the way they presented the news summary -- he was only making $1 a year earlier!
The New York Times, which put the story on the front page, reported that the shareholders' revolt was an expected extension of the current climate, where us 99% keep trying to make a point to those 1%.
"The shareholder vote, which comes amid a rising national debate over income inequality, suggests that anger over pay for chief executives has spread from Occupy Wall Street to wealthy instutional investors like pension fund and mutual fund managers."
The Washington Post reminded us that this vote was unprecedented in its lead quote. Then they got practical.
'"This vote is historic," said Eleanor Bloxham, CEO of The Value Alliance, a board advisory firm. "None of the Wall Street firms have received this kind of a review yet." . . . Wall Street's massive compensation packages have raised the ire of shareholders for years, expecially when they appear to have little relation to the performance of specific objectives."
By the end of the day, the opinions were getting a lot more pointed. The interviewees on PBS NewsHour said the U.S. cultural climate had nothing to do with the vote. It was a question of pay for performance pure and simple. Pandit's performance measures are too short term and inappropriate to a strategic leader.
I'm listing these competing views because it's going to be important to have a clear, data-driven assessment of what really went on here. It's not clear yet, so let me weigh in with additional data. Since all of us have our own filters on, let's try mine out for size.
From this practitioner's view, communications plays a large part in Citigroup's failure and potentially in its next steps.
They apparently did not make a believable case for their proposal, especially because they were indifferent to their audience's concerns. As evidence, we know that they ignored the shareholder organizations' recommendations to vote the package down.
It's hard to figure why they weren't more focused on the shareholders' stated issues when we all know that Citigroup fared badly with the Fed recently, leaving shareholders holding the bag. But I guess they thought they didn't have to listen, based on the way it always used to work before Say on Pay.
Citigroup has said that it is going to meet with shareholders to understand their concerns. At this point, given the "No" vote, they will need to go the extra mile to make that seem like more than an empty gesture. To build credibility, they would need to report to shareholders by naming interviewees and summarizing the truth of their feedback. Then, Citigroup will need to go to some lengths to describe how they are going to use the feedback -- or suffer further inroads in shareholder trust and positioning on the Street.
For those of you who are deep into Say on Pay, there's a fascinating post by Steven M. Davidoff on the New York Times DealBook blog entitled, "Citigroup Has Few Options on Say on Pay Vote." For those of you who work with your Board's Compensation Committee, it's time to think about how your company communicates with your shareholders -- investors who have the company's future performance in mind, and yet can act a lot like customers.
Margaret O'Hanlon is founder and principal of re:Think Consulting. She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results. Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin. Margaret is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University. Creative writing is one of her outside passions, along with Masters Swimming.
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Like most of the 2% of companies that failed Say on Pay in 2011, Citigroup has proved to be essentially tone-deaf when it comes to executive compensation. Complaints against their CEO pay have gone back to at least the prior two CEOs. The only reason Mr Pandit escaped this criticism was his $1 salary since the collapse.
I agree a big part of this was a communication issue, but in this case it was their lacking of listening skills. Their shareholders have lost money (except those who had money to buy the stock immediately after everything fell apart). The company was propped up using government provided support. Regulators have said less than kind words. Shareholders have made it clear that performance had to improve.
Perhaps Citigroup ignored all of this. Perhaps they simply couldn't hear it because it did not meet there view of reality. Either way, this will not be the last vote we see like this in 2012. Hubris is unlikely to be rewarded in this climate
Posted by: Dan Walter | 04/20/2012 at 08:24 AM
Thanks for weighing in, Dan. If Citigroup is tone deaf, it's a disorder that is often found in boardrooms, as you know. You're right on the money -- it will be interesting to see whether other shareholder groups are emboldened by this. It will also be interesting to see what this will do, if anything, to Mr. Pandit's leadership approach. Wouldn't it be great if this improved things at Citigroup?
Posted by: Margaret O'Hanlon | 04/20/2012 at 08:51 AM
The Hay report on the effects of global exec comp interventions by governments summarized today in the May 1 WorkSpan Weekly observed that negative SayOnPay votes can hurt the very stockholders who complain. "Many investors specifically stated that they were less likely to query executive pay under such rules, to avoid an adverse market reaction." Guess that means that those who vote disapproval feel overwhelmingly angry, in order to overcome that initial reluctance to invite more pain upon themselves.
If they were really serious about changing the direction of the companies they own, you would think they would vote against the current compensation committee and elect a new corporate board of directors. Why engage in Gesture Politics when you can actually DO something to remedy the issue?
A cynic might suspect they vote NO simply to depress the stock price so they can buy more shares at a lower cost. Isn't that illegal, to conspire to manipulate stock prices? This rule has to be a short-seller's dream.
Posted by: E. James (Jim) Brennan | 05/01/2012 at 10:41 AM
Jim,given what is going on today, May Day, I think there may be some disconnect between the consultants' and W@W's views on how their clients should be treated, and what is actually going to happen. Feelings are running high in this country, but there's no real, powerful movements forming up yet. So there is no reason yet for Hay and W@W to acknowledge anything but the usual dollar issues.
It's hard to know what, if anything, will happen with other shareholder groups. But it is clear that shareholders are no longer willing to play along no matter what -- and that many companies are finally starting to notice that shareholder communication needs to involve listening.
Part of the Citigroup shareholders' motivation came from the company's poor performance. As I mentioned earlier, the real tell will be if the Citigroup vote influences any leadership behavior there. Then we can truly show that Say on Pay has an impact, and shareholder "no" votes are worth the effort.
Posted by: Margaret O'Hanlon | 05/01/2012 at 11:32 AM
Thanks for sharing the interesting research!
Posted by: Margaret O'Hanlon | 05/01/2012 at 11:33 AM