One of the issues no one can stop talking about since Citigroup announced that its CEO, Vikram Pandit, is out at the bank, is compensation.The question, as Footnoted pointed out, is whether or not Pandit will leave with a hefty Wall Street severance package.
It’s been a rocky road with Pandit and pay. For two years after the financial crisis (2009-2010) he accepted a salary of $1 a year. And this April, shareholders voted against a board-approved $14.9 million 2011 compensation package for the CEO (though he ended up getting it anyway).
But that was then. Pandit’s leaving is a whole different animal.
A reading of Citi’s most recent proxy (filed in March) should let us know how Citi has structured compensation for its executives in various scenarios. Here’s what it says about execs who leave the company:
• No golden parachutes or severance agreements.
• The named executive officers are not eligible for any “golden parachutes” or severance pay upon termination of employment in excess of any benefit that may be available under Citi’s broad-based separation pay plans or local law.
• The named executive officers do not have employment contracts or change in control contracts. Recent equity awards do not provide for acceleration of vesting upon change in control of Citi or termination of employment.
Clawbacks applicable to named executive officer compensation. Deferred incentive compensation awarded under DIRAP to any Citi employee, including the named executive officers, is subject to clawbacks (the Citi clawbacks). Deferred incentive compensation that continues to vest after termination of employment will remain subject to the Citi clawbacks after termination of employment. In general, the Citi clawbacks provide for the forfeiture or cancellation of unvested incentive compensation if the committee determines that the employee (a) received an award based on materially inaccurate publicly reported.
So what does it mean? If this is correct, it means that Pandit is walking away with his deferred compensation still set to go, but no other agreement for additional compensation. His deferred stock should kick in 3 times over the next three years — on December 31st of 2013, 2014, and 2015. That compensation, though, is subject to clawbacks should the board decide that it was awarded to Pandit “based on materially inaccurate publicly reported” information.
The board will discuss Pandit’s awards each time they are to be handed out.
Additionally, there are three areas the board will consider when deciding whether or not Pandit should get his deferred compensation.
- regulatory considerations (such as the results of Citi-wide risk management efforts),
- an organizational culture focused on responsible finance, conducting business with integrity and serving Citi’s customers (measured through performance metrics such as opinion surveys), and
- talent development (such as the quality of succession and development plans across a broad group of senior managers). Before each vesting date, the committee will decide whether to vest the applicable tranche in full or cause the tranche to be entirely forfeited, based on Mr. Pandit’s performance in meeting the discretionary criteria in these three key areas.
If the board does let Pandit keep that money, it amounts to 240,732 Citigroup shares with fair value of $10 million on the award date. That’s on top of everything Citi has already paid him, not just in compensation, but also for his hedge fund Old Lane, which the bank bought for $165 million when Pandit took the CEO position in 2007.
Not bad for five years on the job.