The following editorial appeared recently in the Seattle Times:
For the first time the shareholders of a major U.S. bank company have voted down the pay package of the chief executive. It happened Tuesday at Citigroup, and it is a healthy thing.
Public shareholders finally begin to act like owners. We hope they keep it up.
A skilled CEO should be paid well, but for years people have been asking: Is there a limit? Year after year, corporate boards have been paying CEOs at greater and greater multiples of the pay of the average worker, and shareholders have done nothing about it.
In 2010 Congress passed the Dodd-Frank Act, which requires public companies to have a shareholder vote on CEO pay. The law requires only a nonbinding vote — but there can be power in mere expressions of opinion. Last year, the CEO lost the vote at 41 companies, and nearly half of those companies did change the boss' pay package.
Now comes Vikram Pandit, the CEO of Citigroup, the company that owns Citibank. The bank collapsed in 2008 and had to be rescued by the U.S. Treasury. The Treasury got its money back, and then some, and Pandit agreed to work for $1 a year until Citigroup turned a profit.
It did turn a profit, and the board quickly raised Pandit's pay to $14.8 million plus $10 million in retention money.
The bank's stock has not recovered from the crash, and last month the Federal Reserve vetoed the bank's plan to pay a dividend on common shares.
The money managers with large blocks of Citigroup stock decided that Pandit had not yet earned his $24.8 million. One of them was quoted as saying, "There's good pay and there's obscene pay."
That's a sentiment corporate America needs to hear more of.
Citibank's board should respect their shareholders' decision. If companies ignore votes like this, there will come a time when compliance is no longer optional.