May 19, 2011 / 5:31 PM / 7 years ago

BREAKINGVIEWS - Pandit's new bonuses make mockery of $1 hair shirt

-- The author is a Reuters Breakingviews columnist. The opinions expressed are his own --

By Antony Currie

NEW YORK (Reuters Breakingviews) - The Citigroup boss’s financial crisis hair shirt wasn’t all it seemed. While the megabank was bleeding red ink and relying on U.S. taxpayer aid to survive, Chief Executive Vikram Pandit made the smart political move of taking only $1 a year in compensation until Citi returned to profitability. But now that has happened, his board is piling the largesse back on.

Directors have gifted Pandit a retention package worth at least $16.7 million over about four years, on top of the regular pay and bonus combo he is now receiving. There’s nothing wrong with companies trying to keep key employees. But regular annual bonuses are supposed to achieve that by paying big chunks of them in stock and deferring some payments for several years.

Pandit was brought into Citi when the bank bought his hedge fund firm, Old Lane, in 2007. The funds have since been shuttered, but he is due $165 million from that transaction in July, which surely helps explains the timing of the new retention deal. Citi can argue the bank wants to hang onto him and that his previous restraint deserves some payback. That’s plausible up to a point. But the targets the board has set are soft.

First, Pandit can earn $10 million in stock if the bank hits certain non-financial targets like keeping capital at a decent level, ensuring risk management is sound, promoting a culture of “responsible finance” and developing a good team. These are highly subjective -- but they also sound like the basics of a chief executive’s role, not something that deserves extra rewards.

Second, Pandit can earn $6.5 million or more in cash if the core Citicorp unit’s combined pre-tax profit this year and next hits or exceeds $12 billion. Not only does that calculation exclude results at Citi Holdings, the loss-making unit stuffed with Citi’s bad and unwanted assets. It also rewards Pandit even if earnings drop by 60 percent. That’s because Citicorp earned $30 billion over the past two years. Simply repeating that performance would earn him $16.6 million in cash.

That doesn’t seem especially well aligned with what shareholders want, which is increases in the whole company’s earnings and share price. Pandit deserves credit for steering Citi through the crisis on $1 a year. But this kind of easy money ought to be a thing of the past.


-- Citigroup’s board has awarded Chief Executive Vikram Pandit a multi-year retention package worth at least $16.7 million. It includes $10 million in deferred stock paid out in three equal installments at the end of 2013, 2014 and 2015 as long as Pandit meets certain non-financial criteria including regulatory considerations, fostering a culture of responsible finance and developing talent.

-- Pandit will also get a cash bonus set at 0.5543 percent of Citicorp’s pre-tax earnings as long as the unit’s total pre-tax earnings over 2011 and 2012 hit a combined $12 billion.

-- The measure excludes results from Citi Holdings, the unit containing all Citi’s unwanted assets and businesses that is currently losing money.

-- Citi's SEC filing outlining Pandit's retention package:

(Editing by Richard Beales and Martin Langfield)

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