Pandit Could Forgo $33 Million as Exit Voids Retention Plan

Oct. 17 (Bloomberg) -- Bloomberg's Erik Schatzker discusses what we have and haven't learned about Vikram Pandit's exit as CEO of Citigroup. He speaks on Bloomberg Television's "Bloomberg Surveillance."

Vikram Pandit, who stepped down yesterday as Citigroup Inc. (C)’s chief executive officer, stands to forfeit almost $33 million in cash and stock from a retention package unless the board gives him a payout to ease his exit.

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Citigroup formulated a plan last year that, based on the firm’s performance so far, would have given Pandit $19 million through a profit-sharing agreement, deferred stock now valued at $9 million and $4.6 million in options, according to the terms of a May 2011 regulatory filing and data compiled by Bloomberg. The plan required Pandit, 55, to be employed at the bank through various payment dates, most of which haven’t been reached.

It’s typical for CEOs who resign to forfeit previously negotiated severance and to work out an alternative payout agreement with the board, said Steven Hall, managing director of Steven Hall & Partners, a New York-based executive compensation consulting firm.

Pandit getting nothing would signal that “he stood up and said, ‘I’m resigning,’” Hall said. If he gets a payout, “then the question is, did they give him that in order to smooth the path to his resignation or termination? Or did they look at him and say, ‘You know what, you did a hell of a good job during a very, very rough time, we’d like to do something nice for you,’” Hall said.

Photographer: Andrey Rudakov/Bloomberg

Vikram Pandit, former chief executive officer of Citigroup Inc. Close

Vikram Pandit, former chief executive officer of Citigroup Inc.

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Photographer: Andrey Rudakov/Bloomberg

Vikram Pandit, former chief executive officer of Citigroup Inc.

Pretax Profit

Pandit would have had to remain at Citigroup until at least May 17, 2013, to be eligible for payments under the profit- sharing plan, according to the regulatory filing. He was to receive about 0.055 percent of Citigroup’s cumulative pretax income if it exceeded $12 billion in 2011 and 2012. The company has posted a combined $34.4 billion in pretax profit for 2011 and the first nine months of this year.

While about one-third of 500,000 stock options vested earlier this year, Pandit must forgo the remaining two-thirds currently valued at about $4.6 million, according to the retention plan and data compiled by Bloomberg.

He also will relinquish the $9 million in deferred stock that wouldn’t begin vesting until the end of next year, according to a person familiar with the matter, who requested anonymity because the individual wasn’t authorized to discuss it publicly.

Pandit would have had to satisfy three “non-financial” criteria to receive the award. They include regulatory considerations such as capital levels, talent development and “organizational culture focused on responsible finance,” Citigroup said in the filing. The agreement doesn’t specify whether Pandit needs to be employed by the firm on the vesting date to receive the deferred stock.

Deferred Cash

Pandit won’t forfeit about $9 million in deferred cash and stock he received as part of his year-end 2011 compensation as long as he doesn’t work for a “significant competitor” in the next three years, according to the firm’s annual proxy filing.

If Citigroup doesn’t alter Pandit’s pay, its shareholders will have paid him about $261 million in the five years since he became CEO, including personal compensation and about $165 million for the 2007 purchase of his Old Lane Partners LP hedge fund in a deal that positioned him to take charge of the company. Pandit shut Old Lane and booked a $202 million writedown soon after he took the post.

Shareholder Opposition

Investors rejected Pandit’s 2011 compensation package in April amid criticism that he collected millions of dollars in rewards too easily. Citigroup’s board, led by Chairman Michael O’Neill, promised to discuss Pandit’s pay with the company’s biggest shareholders after 55 percent of the votes cast opposed the plan.

O’Neill, 65, was among the Citigroup directors on the compensation committee who awarded the retention package to Pandit in 2011. Alain Belda, the former Alcoa Inc. (AA) CEO, led the committee while other members included then-chairman Richard Parsons, Diana Taylor and William Thompson.

“Vikram has done an outstanding job since coming on board as the financial crisis began,” Parsons said in a filing. “The long-term, multi-year, performance-based structure of this award is designed to retain Vikram as our CEO and reward him for future performance benefitting the company and our shareholders.”

John P. Havens, who yesterday stepped down as chief operating officer, may forfeit $14.9 million through his profit- sharing agreement, according to a February 2011 filing and data compiled by Bloomberg.

Pandit and Havens, 56, didn’t respond to e-mail and phone messages seeking comment on their pay packages.

Michael Corbat, 52, Citigroup’s new CEO, will receive a base salary of $1.5 million, the bank said yesterday. Pandit’s base salary was $1.67 million for 2011 after he took a $1 salary for 2010 and most of 2009.

To contact the reporters on this story: Laura Marcinek in New York at lmarcinek3@bloomberg.net; Donal Griffin in New York at dgriffin10@bloomberg.net; Michael J. Moore in New York at mmoore55@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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