March 5 (Bloomberg) -- Citigroup Inc. executives stand to collect $579 million under profit-sharing plans that include the one shareholders voted against last year.
The lender booked a $246 million expense in 2012 tied to the plans, adding to $285 million for the previous year and $48 million in 2010, according to regulatory filings. Competitors of the New York-based bank said they didn’t make similar awards, which are on top of annual salaries and bonuses.
Citigroup’s executive pay has been under fire since April, when shareholders rejected 2011 compensation packages for senior managers -- including profit sharing -- in a non-binding ballot. Chairman Michael O’Neill, 66, also a member of the board’s compensation committee, said last month that future payouts will be more in line with performance.
“It’s not a particularly well-designed incentive plan and it’s probably a good thing that it’s being phased out,” said Paul Hodgson, an independent compensation analyst based in Maine. “They’re a bit of a blunt instrument.”
The Key Employee Profit Sharing Plans, or KEPSPs, cover Citigroup’s performance from 2010 to 2012. The bank will pay two-thirds of the awards by March 15 while executives must wait until 2014 for the rest, according to filings.
Charles Peabody, an analyst with Portales Partners LLC in New York, said the payouts are difficult to justify given last year’s shareholder rejection. Peabody, who told clients in a 2011 note that he was “dismayed” by the lack of stringent financial thresholds in that year’s plan, said today that Citigroup hasn’t done enough to tie pay to performance.
“The compensation plan was a travesty,” said Peabody, who has an underperform rating on the shares. “Citi’s board and management team continue to make a mockery of shareholder, political and regulatory demands that compensation reflect performance.”
Under the 2011 plan, consumer banking head Manuel Medina-Mora, 62, will get about $8.8 million, according to data compiled by Bloomberg. Chief Financial Officer John Gerspach, 59, will receive about $5.7 million and Alberto Verme, 55, chairman of banking in Europe, the Middle East and Africa, about $7.5 million, the data show. Michael Corbat, who was named chief executive officer last year, will get about $7.6 million under a separate 2010 plan, according to the data.
The profit-sharing payouts are on top of annual salaries and bonuses granted to senior executives, including the $11.5 million package awarded Corbat for 2012. He received $9 million in compensation for 2010, the same year directors approved his KEPSP. The bank didn’t disclose Corbat’s 2011 pay.
Medina-Mora received $11 million in salary and bonuses for 2011 and Gerspach got a $6 million package. While Citigroup has yet to disclose their compensation for last year, they shared about $5 million of stock awards, the firm said in February.
The 2011 KEPSP gives executives a percentage of pretax profit from continuing operations for 2011 and 2012 at Citicorp, the division that contains consumer banking, investment banking and transaction services. Executives were eligible to receive the award only if profit exceeded $12 billion for the two-year period. The unit earned $39.8 billion over that time.
The 2011 plan excluded pretax losses at Citi Holdings, the unit that holds unwanted and unprofitable assets such as distressed U.S. mortgages and Greek small-business loans. Pretax losses at Citi Holdings totaled $17.2 billion for the period, according to financial supplements.
Citigroup’s total profit for the period was $18.6 billion, less than half of the pretax amount at the Citicorp unit that the bank used to calculate the bonuses.
“The committee made the awards in furtherance of the goal of preserving and incenting Citigroup’s key executive team,” the company said in a 2011 regulatory filing. “The value, if any, that the executives realize with the respect to the awards will depend on Citi’s performance over a forward-looking multiyear period.”
Mark Costiglio, a bank spokesman, declined to comment on Bloomberg’s methodology for calculating the payouts. He also declined to comment on how many executives will benefit or the total amount they will receive.
Bloomberg’s calculations involved multiplying Citicorp’s pretax profit by a percentage for each individual disclosed in a 2011 filing. Pretax profit was defined as the firm’s total pretax income minus pretax losses from Citi Holdings.
Another way to figure the awards is to exclude profit from the store-branded credit-card business that former CEO Vikram Pandit moved to Citicorp from Citi Holdings at the end of 2011. Using that scenario, Gerspach’s award would be about $5 million, based on Bloomberg data. Medina-Mora and Verme would receive approximate payouts of $7.8 million and $6.6 million, respectively, according to the data.
Pandit, 56, split the bank into Citicorp and Citi Holdings after the lender almost collapsed in 2008 amid losses on mortgage investments. Taxpayers prevented the bank’s demise with a $45 billion bailout, which was later repaid.
Citigroup probably created the profit-sharing plan to prevent key employees from leaving after the crisis, said Marty Mosby, an analyst with Guggenheim Securities LLC in Memphis, Tennessee. Directors may have excluded losses at Citi Holdings so executives would remain focused on parts of the bank able to create long-term profit, said Mosby, who has a buy rating on the shares.
“You don’t want to bring Citi Holdings losses on top of that because that turns into a big discouragement,” he said.
Pandit was in line to receive about $22 million from the 2011 KEPSP, the data show, until the board ousted him in October. Directors led by O’Neill forced Pandit out after concluding that he mismanaged the lender’s operations, a person familiar with the matter said at the time. Pandit received about $228 million in payments and awards from Citigroup during his five years there, including $165 million when the lender bought his Old Lane Partners LP hedge fund in 2007.
“The KEPSP award granted to Mr. Pandit was canceled upon his resignation,” the firm said.
John Havens, 56, the Citigroup president who resigned when Pandit departed, would have received about $17.2 million under the 2011 KEPSP, the data show. He also forfeited profit-sharing awards when he left, the bank said in November.
Corbat, 52, who replaced Pandit as CEO in October, received an award under a 2010 plan that gave “certain key business and functional leaders” a share of the pretax profits for the three years ended in 2012, an annual filing shows.
Corbat will get about $7.6 million under that plan, according to Bloomberg data. Excluding the store-branded cards transfer, he would receive about $6.9 million, the data show. That assumes the same 32 percent tax rate for the unit as for the consumer-banking division where the cards business is now housed.
The 2010 award’s structure was similar to the 2011 plan in that it excluded Citi Holdings’s results, even for Corbat, who was running the division at the time. Pretax losses at the unit for the three years through 2012 were $24.5 billion.
The executives would receive payments from the 2010 plan only if the bank’s pretax profit, as measured by the award, exceeded $17.5 billion. The plan was approved in October 2010. That wasn’t a tough hurdle to jump. In the first nine months of that year, pretax profit was already $17.4 billion, based on the company’s reporting.
Citigroup’s use of pretax profit to grant awards “sets the bar too low,” said Hodgson, the compensation analyst. “They’re not looking at anything else apart from pretax income, which is just not a good enough measure of a bank’s performance.”
Richard Parsons, 64, was Citigroup’s chairman when both plans were introduced. He retired in April.
Alain Belda, who also left the board last year, headed the compensation committee in 2011. Other members included Parsons, William Thompson and Diana Taylor, according to a proxy filing. Taylor is the companion of New York City Mayor Michael Bloomberg, the founder and majority owner of Bloomberg News parent Bloomberg LP.
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