Something really scary happened to Vikram Pandit recently. No. It's not about that time Citigroup almost failed. It's about his salary.
Citi shareholders last week said, "No way. Not happening" when Pandit asked for a $15 million salary. Why? Just look at the bank's dismal 2011 share price performance. It was down more than 44%, and nearly 90% under Pandit's tenure.
The rejection by shareholders isn't only scary for Pandit and his directors (who were also affected) but it should also serve as a warning to under-performing CEOs of public companies everywhere--especially Pandit's peers at rival banks.
Consider that since taking over their respective financial firms just three of seventeen U.S. bank CEOs have managed to get their stock's performance to beat the S&P500. The three with more successful track records: John Stumpf of Wells Fargo who took the job in June 2007; Ken Chenault, CEO of American Express since January 2001; and PNC's Jim Rohr who's been head of that firm since May 2000.
The table to the right (courtesy of CLSA bank analyst Mike Mayo) illustrates how each bank's share price has performed under its CEO relative to the S&P, the KBW Bank Index and in absolute terms since the CEO took over.
There are some big notable names at the top included JPMorgan Chase CEO Jamie Dimon whose been leading the charge at the nation's biggest bank since December 2005.
But more importantly, check out the bottom three CEOs. Surprised? Citi's Vikram Pandit for instance has done the worst for his shareholders since taking over in December 2007. Other troubled banks: Morgan Stanley and Bank of America.
Now consider this: The CEOs of Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley had a total compensation of more than $80 million in 2011--a year where the last thing you wanted to touch was a financial stock.
Nonetheless, Pandit's total compensation which includes a base salary, bonus, perks, stock and option awards and pension was nearly $15 million. At BofA Brian Moynihan didn't take a bonus (he hasn't taken one since taking over in January 2010) but his total compensation was over $8 million. That includes a salary of $950,000 (same as 2010) and stock and option awards.
The banking world's more successful CEOS are JPMorgan's Jamie Dimon and Wells Fargo's John Stumpf. Dimon was the highest paid CEO in 2011 with total comp reaching $23.1 million which includes a $4.5 million bonus for the year. Stumpf's base salary in 2011 was $2.8 million but throw in over $12 million in stock awards and that brings his 2011 total compensation to $19.8 million.
Over in the investment banking world Goldman Sachs CEO Llyod Blankfein Blankfein had $5.4 million in annual comp which includes a base salary, bonus and perks. Stock awards and pension bring his 2011 total compensation to over $16 million. His Wall Street rival James Gorman, of Morgan Stanley, had the lowest base salary among the mentioned CEOS with $800,000. But don't feel bad for Gorman just yet. His $2.7 million bonus bumps him up for the year and total compensation was just under $13 million in 2011 thanks to about $9.5 million in stock and option awards.
But the Citi executive pay debacle brings to light more than just Pandit's poor performance. There's something bigger the "say on pay" rule has triggered that I mentioned briefly last week. If Citi shareholders get their way and executives there end up having to take a paycut then shareholders at public companies will have just discovered a powerful tool to keep executives in check.
In a note last week, Mayo discussed a shift of power at public companies from management to the hands of shareholders. He writes:
This week alone, shareholders have spoken up regarding pay (Citigroup), pay and return of capital (Barclays) and directors (Goldman Sachs), and activist investor Trian Partners continues to maintain its stake in State Street (which we view as good pressure)...Corporate governance is undergoing an inflection point based on our conference two weeks ago. The speaker consensus (Larry Fink, Wilbur Ross, John Kanas, Rodgin Cohen, Ed Garden, Ralph Whitworth) is that companies need to improve the owner-manager link, investors are increasingly taking action to improve alpha and their fiduciary oversight, and banks need to catch up...Bank boards (and others) need to improve given too many directors who have too little skin in the game, too little experience, too little staff, too little incentive to speak up and too little accountability – even after the industry’s problems.
The so-called "say on pay" vote was granted to shareholders under the Dodd-Frank Wall Street and Consumer Protection Act. It seems it's been one of the few (if only) rules that's actually worked in favor of investors so far.
