You are hereTruthout: Shareholders Say No to Citigroup CEO Pay: A Model for Fighting Crony Capitalism

Truthout: Shareholders Say No to Citigroup CEO Pay: A Model for Fighting Crony Capitalism


-By Dean Baker

April 23, 2012- Last week, the country saw one of the fruits of the Dodd-Frank financial reform bill. The bill requires that major corporations offer their shareholders the opportunity to vote on the pay package for their chief executive. The shareholders of Citigroup voted down the $14.9 million pay package for CEO Vikram Pandit by a margin of 55-45 percent.

The vote was nonbinding (a very serious problem), but it was nonetheless a huge slap in the face for Pandit and Citigroup's top management and directors. It is extremely difficult to organize shareholders for this sort of vote. Management controls the flow of information to shareholders in a way that would make incumbent members of Congress green with envy.

When shareholders see a poorly run company, it is far easier for even large investors to just dump their shares rather than try to gain the support needed to change the way the company is managed. That is why this vote was so striking in a huge corporation like Citigroup.

Of course, the law is still tilted so much in management's favor, that even when the shareholders - the actual owners of the company - vote down a pay package, it is still only an advisory vote, which the board and top management is free to ignore. But this vote is still a big step forward.

The first question that people should ask is how Pandit managed to get a compensation package that was so out of line with his performance. The fact that executive pay packages bear little relationship to performance is well documented in Lucien Bebchuck and Jesse Fried excellent book "Pay Without Performance."

The issue that Bebchuck and Fried examine is not whether CEO pay is too high in some abstract sense, but more specifically whether it can be justified by the extent to which CEOs increase a company's profits and share price. They cite study after study showing the big bucks CEOs rake in has little to do with their performance.

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