- Citigroup scraps old bonus scheme, sets tougher targets for new chief executive
- Citi move aims to quell shareholder revolt over executive pay
- CEO Mike Corbat must beat stock performance of four other global banks to collect new award
- Corbat was paid $11.5m in 2012, former CEO Vikram Pandit was paid $15m in 2011
Citigroup tried to quell a shareholder revolt over executive pay by scrapping an old bonus scheme and setting tougher targets for its new chief executive.
Mike Corbat, appointed chief executive after Vikram Pandit was ousted last year, will have to improve return on assets to a level last seen in 2006 and beat the stock performance of four other global banks to collect on the new award, Citi revealed in a regulatory filing on Thursday.
That replaces a scheme that investors lamented as too weak when they voted against remuneration at Citi in a shareholder vote last year.
"When our shareholders spoke last year about Citi's compensation structure, we listened," said Michael O'Neill, who instigated Mr Pandit's departure and has led the review of pay since he was appointed chairman last year.
For 2012, Mr Corbat was paid $11.5m, Citi announced, slightly lower than Brian Moynihan, chief executive of Bank of America, and in line with Jamie Dimon of JPMorgan Chase. Mr Pandit's remuneration totalled $15m in 2011.
The new structure for executive pay will pay 40 per cent of awards in cash, 30 per cent in deferred stock and 30 per cent in performance share units. To get a full pay-out on the final category, Mr Corbat will have to achieve a return on assets of 0.85 per cent and deliver a total shareholder return above four peers. Citi did not specify the dollar amount available.
Mr Corbat can get an additional bonus by boosting ROA to more than 1 per cent and beating 75 per cent of a group of eight peers, which includes BofA, JPMorgan and Deutsche Bank. Citi's ROA last year was 0.4 per cent
Citi had been calling large investors ahead of the publication of its new pay scheme to discuss its approach. A previous long-term bonus scheme for Mr Pandit required only a moderate earnings improvement to pay out.
Investors last year expressed frustration with the form and presentation of Citi's plan, particularly the way it presented one good year of share price performance without the context of the preceding four under Mr Pandit. "You'd lost 90 cents on the dollar and then recovered 10 cents of that", said one investor who voted against last year.
The investor said it was very important that "risk hurdles" be part of the pay plan. Citi said it was aware of investors' concern that bonus targets should not encourage excessive risk-taking and included "clawbacks" of awards if the company later suffered.
Mike Mayo, analyst at CLSA and a frequent critic of Citi in the past, said the "firm metrics versus a more nebulous approach in the past" reflected positive change that could lead "to greater accountability, improved tone at the top and a reset of perceptions and valuation".