Citigroup Inc. (C) has hit the headlines again and this time over its compensation policy for its top executives. In fact, according to a Reuters report, a suit has been filed by a shareholder against the CEO – Vikram Pandit, and the directors, over their pay packages.
According to the allegations, Citi’s board has awarded its top executives an excessive pay package for a period of their service when the company’s performance has been disappointing. Notably, the compensation awarded to top Citi executives in 2011 amounted to$54 million and included $15 million for Citi’s CEO. Hence, by awarding such an elevated level of compensation, the top executives have breached their fiduciary duties, the lawsuit claimed.
The suit comes after the shareholder’s refusal to approve Citi’s executive pay packages at the company’s recent annual meeting. In a period of disappointing revenue figures and a fall in stock price, shareholders believe that the executives do not deserve such excessive pay outs.
Besides, Citi has also failed to clear the stress test this year while a number of its rivals such as JPMorgan Chase & Company (JPM) and U.S. Bancorp (USB) could make it through. This also raises questions about the capital position of Citi and postpones any plan of the company to go for dividend hikes and share buybacks. Notably, Citi has failed to significantly enhance shareholder value following the financial crisis and this has somewhat weakened its competitive position.
The suit has been filed as per a provision of the Dodd Frank Reform Act. The provision in particular is “say on pay” which gives shareholders the right to vote on the compensation of the executives.
Though the suit has been termed by Citi as one without any merit and its dismissal will be sought by the company, we believe that if the suit can make through and win, then it will reinforce the power of shareholders on have a control over the executives’ pay packages. This should in turn inspire the top executives to perform better so as to earn a higher compensation.
Citi shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold rating.
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