Citigroup’s top executives, and Robert Rubin, a director and senior adviser, will forgo their 2008 bonuses amid internal and external pressure to atone for the company’s huge losses and a $300bn government bail-out.
Vikram Pandit, Citigroup’s chief executive, wrote in a company-wide memo on Wednesday that because of its poor earnings performance, the bank’s bonus pool was dramatically lower than last year. As a result of that and last month’s government rescue, the bank’s compensation policies have been overhauled.
“The most senior leaders should be affected the most,” Mr Pandit wrote, referring to himself and Win Bischoff, the bank’s chairman. “That is why Win Bischoff and I will receive no bonus for 2008. Win and I believe this is fair, in light of the challenges of the year and the need for compensation elsewhere in the organisation.“
Meanwhile, Mr Rubin, a former US Treasury secretary, told the board that, under the circumstances and at this stage of his career, he felt the funds that would have been used for his bonus could be better spent on other employees, Mr Pandit wrote. Mr Rubin, who has earned more than $115m since joining Citi in 1999, also waived his bonus last year.
In spite of having no operational responsibilities, Mr Rubin remains an influential voice in Citi’s boardroom.
People close to the situation have said that last month’s government rescue made it almost impossible for Citi’s board to award cash bonuses to other senior executives.
“The senior management team as a whole must demonstrate leadership,” the memo said. “Consequently, the bonuses for the Senior Leadership Committee will be reduced substantially.”
Under the terms of the rescue, the government has to approve Citi’s executive compensation plan, including bonuses and long-term awards. People familiar with the situation warned earlier this month that no formal decision on bonuses would be taken until January but added that Citi’s executives had to make a significant gesture to defuse criticism from politicians and regulators. Rising dissent among employees, many of whom face redundancy or lower bonuses, has also weighed on Citi’s deliberations.
Mr Pandit said that the new policies were “consistent” with the government’s objectives.
Citigroup also introduced a “clawback” policy to recover executive compensation that proves to be based on false information. Moreover, severance packages will be limited and the five senior executives listed in the bank’s proxy statement can no longer receive severance.
The group’s shares have lost 75 per cent of their value since January as the company reported billions of dollars in writedowns and credit losses and laid off thousands of employees.
Citi’s position on executive compensation has been closely watched because last year Mr Pandit, who became chief executive in December, and other senior executives did not receive bonuses.
Under Citi’s previous executive compensation plan, no bonuses should be paid unless the company’s annual return on equity is more than 10 per cent, although the board can award bonuses under other schemes.
Separately, Citi has been sued by investors alleging the company concealed the deteriorating health of its mortgage and derivative book and resold collateralised debt obligations to itself in order to hide its exposure to the derivatives. Citi said the lawsuit was ”without merit”.