Citigroup Inc., the second-worst performer in the KBW Bank Index last year, is grappling with a revenue slump. Chief Executive Officer Vikram Pandit is not.
Pandit’s $15 million pay package for 2011 and a multi-year retention package announced in May could total $53 million, based on regulatory filings and an analyst’s estimate. The CEO also received $80 million last year from the New York-based firm’s purchase of his Old Lane Partners LP hedge fund in 2007.
Pandit, 55, is being rewarded with more compensation after accepting a $1 annual salary for most of 2009 and 2010 as he helped the bank recover from the brink of collapse and boosted net income 4 percent to $11.1 billion last year. Still, the stock slid 44 percent last year and revenue fell almost 10 percent as Europe’s sovereign-debt crisis roiled markets.
“The awards have been very generous,” Frank Glassner, CEO of Veritas Executive Compensation Consultants in San Francisco, said in a phone interview last week. “It’s obvious Mr. Pandit has been working very, very hard, but they don’t seem to be in line with total shareholder return.”
Pandit received more than Stuart Gulliver, CEO of London-based HSBC Holdings Plc, which generates most of its earnings abroad, as Citigroup does. Gulliver got 7.95 million pounds ($12.5 million) including salary, bonus and equity awards for 2011. Net income climbed 28 percent to $16.8 billion as revenue was little changed, filings show. The stock fell 25 percent.
Most U.S. banks haven’t yet announced total 2011 CEO compensation. Pandit’s pay for the year, disclosed in a March 8 filing, included stock awards, $1.67 million in salary and a $5.33 million cash bonus, his first in four years.
Bank of America Corp. cut CEO Brian T. Moynihan’s package for 2011, granting him no cash bonus and freezing his salary at $950,000, a person briefed on the matter said last month. It gave him $5.9 million in restricted stock units, mostly linked to future performance, according to a filing. The bank returned to profitability in 2011 with net income of $1.45 billion, as revenue slid 16 percent. The shares tumbled 58 percent.
JPMorgan Chase & Co., the largest U.S. lender, is likely to award CEO Jamie Dimon a $23 million package for 2011, after the New York-based firm posted a record $19 billion profit, a person briefed on the plans said in January. Revenue at the bank slipped 5.3 percent last year, and the stock fell 22 percent.
Pandit became CEO in December 2007 as Citigroup struggled with losses linked to soured mortgages. The bank got a $45 billion taxpayer bailout in 2008, which has since been repaid. His award reflects the company’s return to profitability, the bank’s personnel and compensation committee said in the filing. Total profit for 2010 and 2011 was $21.7 billion, compared with losses of $29.3 billion for the preceding two years.
Revenue fell to $78.4 billion last year as transactions tumbled in trading and investment banking while Pandit also reduced Citigroup’s unwanted assets. Expenses, including compensation and benefits, climbed 8 percent to $50.9 billion.
“Although Citi’s reported financial performance was mixed, underlying client trends point to continued progress on our operating goals,” the bank said in the filing. “Pandit has led Citi’s return to profitability and has positioned the company for future growth.”
Pandit plans to cut 5,000 jobs to pare as much as $3 billion of expenses this year, Citigroup has said. In January, Chief Financial Officer John Gerspach blamed “some management and execution challenges” and market conditions for the bank’s “current difficulty.”
Citigroup’s stock has advanced 30 percent this year through last week to $34.20. It was the second-worst performer behind Charlotte, North Carolina-based Bank of America in the 24-company KBW index last year.
There’s a “disconnect” between pay and performance for some bank executives, said Peter Sorrentino, who helps oversee $14.6 billion at Huntington Asset Advisors in Cincinnati. It’s one reason why his firm doesn’t own Citigroup shares, he said.
“We would have difficulty justifying that type of an award given the performance of the organization,” Sorrentino said in a phone interview. “We want to see that the management’s interests are directly aligned with our interests.”
Pandit was awarded a retention deal in May that included $10 million of stock, and options to buy about $6 million more, a person familiar with the matter said at the time. The package included a profit-sharing plan that may bring Pandit an additional $22 million, based on earnings estimates from Moshe Orenbuch, an analyst at Credit Suisse Group AG, possibly giving the CEO $38 million on top of his annual compensation.
Shannon Bell, a spokeswoman for Citigroup, declined to comment on the calculations. The board designed the package to retain Pandit as CEO and reward him for future performance, Chairman Richard Parsons said in May.
Shouldn’t Be Counted
The $80 million Pandit received in July was part of the $800 million sale of Old Lane to Citigroup in 2007. He would have forfeited a “substantial portion” of that payment had his employment ended before then “for cause or without good reason,” the company said in a regulatory filing last year.
Citigroup said that payout shouldn’t be counted as pay for Pandit’s recent performance.
“Linking proceeds from the sale of a business with CEO compensation is not just misleading, it also obscures the fact that these events occur over an eight-year period since the sale of Old Lane closed in 2007 and the retention awards don’t completely vest until 2015, assuming all their terms are met,” Bell said in an e-mail.
‘Very, Very Smart’
Citigroup Vice Chairman Lewis Kaden said in an October 2007 interview that the Old Lane deal was really a way to recruit Pandit and his colleagues.
“You start to see the quality of the team,” Kaden said. “If it succeeds, it was a bargain.”
The bank shut the fund shortly into Pandit’s reign as CEO and took a charge of $202 million in 2008 to write down the value of its investment, according to a regulatory filing.
“You’ve got to give the guy credit, he must be very, very bright,” said Alex Lieblong, who oversees more than $100 million with Key Colony Management LLC in Little Rock, Arkansas. “He sold them a business that they had to write off and they made him president.”
Lieblong also is a director of Conway, Arkansas-based Home Bancshares Inc. That lender gave CEO Randall Sims’ a compensation package of about $867,000 for 2011, including salary, cash bonus, stock awards, country club dues and a gasoline allowance. The stock gained 18 percent for the year, compared with a 15 percent decline for the 201-company Russell 1000 Financial Services Index. The bank repaid a $50 million U.S. bailout last year.
Citigroup’s personnel committee is led by Alain Belda, former CEO of Alcoa Inc., who’s leaving the board in April. Other members include Parsons, who also will resign, Diana Taylor, William Thompson and Michael O’Neill. O’Neill will stand for chairman, Citigroup said last week.
Chief Operating Officer John Havens, 55, who oversees the securities and banking division, or S&B, received about $13 million for 2011, including a $5 million cash bonus, the March 8 filing showed. Profit at the unit, which includes trading and investment banking, fell 24 percent to $4.9 billion last year.
Havens founded Old Lane with Pandit. He also received $80 million last year from the sale of the hedge fund.
“Although 2011 was a challenging year for Citi and particularly for S&B, Mr. Havens provided steady leadership, a focus on longer-term goals, and an emphasis on diligent risk management,” Citigroup said. “S&B achieved competitive results in a challenging global markets environment.”
Manuel Medina-Mora, 61, the consumer-banking chief, received about $11.4 million, including a $4.2 million cash bonus. Profit at the regional consumer-banking unit jumped 33 percent to $6.2 billion in 2011, compared with the prior year.
Chief Risk Officer Brian Leach got $11.4 million. He also received $8.6 million from the Old Lane deal, filings show. Chief Financial Officer Gerspach was paid $7.2 million, the bank said.