Finance

Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

(Updated )

Citigroup shareholders had their say on Tuesday, and not surprisingly the attempts by a few insurrectionists to shake things up failed. 

All of the proposals endorsed by the board of directors passed, while the  proposals put forth by shareholders were shot down. What's interesting, however, is the percentages. These proposals received less than 5 percent of the vote: a plan for an independent study of breaking up the firm by selling all noncore business segments; a plan to prepare a report showing the company does not have a gender pay gap; and a proposal that executive officers must wait 10 years without getting in trouble before a receiving a substantial chunk of deferred compensation.  

However, one board-endorsed proposal in particular illuminated where shareholder angst is concentrated. It was Citigroup's compensation plans, which resulted in paydays like this for 2015: 

Pay Under Scrutiny
Citigroup's compensation policy came under fire from shareholder rights groups ISS and Glass Lewis
Source: Citigroup proxy statement

Shareholders representing more than 36 percent of Citigroup's stock voted against the firm's executive compensation policy, highlighting the influence of proxy advisers Institutional Shareholder Services and Glass Lewis. Both of them recommended voting against the plan and argued that CEO Michael Corbat's 27 percent raise was not justified by a stagnant share price.  

Lackluster Year
Citigroup Shares fell last year more than a gauge of big bank shares
Source: Bloomberg

The proposal still passed and, as Dakin Campbell reported, that means Corbat likely does not have to worry about the type of fate bestowed upon his predecessor, Vikram Pandit, who was ousted six months after a shareholder revolt at the 2012 annual meeting. Still, that large percentage of no votes also makes it clear the writing is on the wall: Shareholders, naturally, care a great deal about the stock price, and Corbat could understandably face more agitation if he continues to underdeliver.

Few may feel the pain of Citigroup's stock slump more than Corbat himself. The value of the performance share units he's been granted over the past three years fell from a nominal $10.5 million on the date they were granted to $6.6 million on Feb. 19, a decrease of 37 percent, according to Citigroup's proxy statement. So that means last year's $16.5 million payday, admittedly a tidy sum but not out of whack with the bosses of competing banks, may not end up being as big as expected if the shares don't perk up. 

Performance Anxiety
The value of Citigroup CEO Michael Corbat’s performance share units have slumped with the bank's stock
Source: Citigroup proxy statement

It's understandable that shareholders get worked up about the performance of the stock they own, but before holding a CEO's feet (and pay) to the fire, some other metrics should be considered. For example, Citigroup posted net income of more than $17 billion, the most since 2006, even as the bank was shrinking and both revenue and assets were down year over year. It passed its Federal Reserve stress test last year and was the only big U.S. bank not to fail its "living will" resolution plan this year. In the negative column, return on tangible common equity of 9.2 percent and core income from continuing operations before taxes both missed Corbat's goals by less than 10 percent. 

The analysts who cover Citigroup see the pain in the shares ending, with an average target price implying an 18.2 percent gain in 12 months. (A return to tangible book value, should that ever happen, would lift Citigroup by almost 29 percent.) It's rated the equivalent of "buy" at 27 firms, with the remaining six rating the shares the equivalent of hold, making Citigroup the second-most-loved stock in the KBW Bank Index.  

Citigroup's shareholders were right to approve the executive compensation plan this year. But the significant number of shares that were voted against the bank's compensation policy signal that restlessness is growing. Fair or not, the share price may ultimately end up being the only thing on Corbat's resume that matters. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(Corrects voting percentage in the fourth paragraph.)

To contact the author of this story:
Michael P. Regan in New York at mregan12@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net