DALLAS — At an otherwise-placid annual shareholder meeting held outside of New York City for the first time, Citigroup (NYSE:C) shareholders dealt a blow to management and the board of directors by rejecting ratification of the bank's executive-compensation proposal.
At the meeting Tuesday in Dallas, 45% of votes cast approved the proposal set forward by the board, and mandated by law, to approve executive compensation for five of the top executives whose compensation must be disclosed.
Since the law counts absentee votes as rejections, 55% disapproved of Citi bankers' pay. A Citi spokeswoman said 75% of votes were cast. The vote isn't binding
The result, though preliminary, "is a serious matter," Citi Chairman Richard Parsons said at the end of the meeting. "The board of directors takes this matter seriously," and the directors will consult with shareholder groups to determine their concerns.
It was Parsons's last annual meeting since he stepped down from the board after 16 years. Citi's board appointed Michael E. O'Neill as chairman. All Citi's directors received at least 82% of shareholder votes.
Chief Executive Vikram Pandit, who had reduced his compensation to $1 at the height of the financial crisis, last year received $14.9 million in cash and stock options. John Havens, Citi's president and the head of the bank's capital-markets businesses, took home $13 million last year.
A Citi spokeswoman said senior management, along with the directors, "will consult with representative shareholders to understand their concerns."
It is unusual for large number of shareholders to vote against a proposal brought forward by the board, and a significant number of large institutional investors such as mutual and pension funds must have decided to disapprove.
Even some institutional shareholders didn't see the vote coming. "I was surprised to see this," said Terry Maltese, the president of Sandler O'Neill Asset Management LLC. Frank J. Barkocy, director of research at Mendon Capital Advisors Corp. said the vote was "interesting, particularly since the company [has made] good progress."
The compensation vote, a result of the Dodd-Frank financial-overhaul law, was a surprise upset at a uncharacteristically calm annual meeting for Citi. Pandit pointed to strong capital and improved earnings to highlight the progress of the company, which had required $45 billion in government aid to survive. He said the bank had gained new, and long-term, shareholders last year.
Parsons had already thanked the Dallas audience before the results of the votes were cast. "Thank you, Dallas. This has been a pleasure," he said.
Fewer than 300 shareholders attended, though a Citi spokeswoman said the bank has a large contingency of shareholders in Texas, one reason why Dallas was chosen for the meeting this year.
"If this were New York, we'd be wrestling in the weeds by now," Parsons said just over half an hour into the meeting. One shareholder said: "These meetings are much more fun in New York." But Parsons shot back: "For you! I have a great time."
Concerns tied to the financial meltdown lingered among shareholders. One investor asked about how the board is briefed on mortgage issues. "We have been all over this issue," Parsons answered. "We discuss it at every board meeting."
CEO Pandit said the bank has made progress in attracting new shareholders such as mutual funds and long-term investors after its reverse-stock split last year.
"Investment in our company by the top-50 institutional investors has risen in every quarter since the split--in nearly all cases at a rate higher than investors in our peers," Pandit told shareholders.
