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.
CITIGROUP INC (
C
): Free Stock Analysis Report
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JPM
): Free Stock Analysis Report
US BANCORP (
USB
): Free Stock Analysis Report
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