Disclosure of Consulting Services

2010 – Citigroup

 

 

RESOLVED, that stockholders of Citigroup Inc. ("Citigroup") urge the board of directors to adopt a policy that Citigroup shall include in the Compensation Discussion and Analysis section of the proxy statement the following information:

 

a. A description of any services, other than executive compensation consulting ("Other Services"), provided by any firm that provides executive compensation consulting services (each, a "Firm") to Citigroup's board's Personnel and Compensation Committee (the "Committee"), in the last full fiscal year;

b. If a Firm has provided Other Services-

 

i. The fees paid by Citigroup to the Firm in the last full fiscal year for (i) executive compensation consulting services and (ii) Other Services; and

ii. Whether individual consultants who provide executive compensation advice are permitted to own equity interests in the Firm.

 

Supporting Statement: As long-term owners, we believe that a company's pay practices reflect how well a board aligns management and shareholder interests. The current financial crisis has made clear that executive compensation at many companies is on an unsustainable trajectory and has become unmoored from company performance.

 

As compensation has become more complex, board compensation committees are increasingly turning to compensation consultants to craft executive pay packages. We believe a potential conflict of interest exists at companies like Citigroup in which firms are hired to do work for both the board's compensation committee and the company or its management. We note that Citigroup's most recent proxy statement lists three firms that provide services to the compensation committee. Although Citigroup reports on the fees paid to its independent consultant, ICCA, disclosure of the fees paid to Towers Perrin or Mercer Human Resource Consulting for either executive compensation consulting or Other Services-which are characterized as "substantial" by the company-is noticeably absent.

 

The potential conflict of interest stems from the fact that executive compensation consulting is often much less lucrative than providing other kinds of services, such as employee benefits management, information technology, and actuarial consulting. One independent consultant has estimated that executive compensation consulting accounts for only between .5% and 2% of total firm revenue. (Comment Letter of James F. Reda & Associates LLC on S7-03-06, "Proposed Rules on Executive Compensation and Related Party Disclosure," at 5 (Apr. 6, 2006)) A 2007 study by the House Committee on Oversight and Governmental Refonn, using data subpoenaed from consulting firms, found that on average, consulting firms that provided both executive compensation and other kinds of consulting were paid nearly 11 times more for the other consulting than for the executive compensation services.

 

Given the key role compensation consultants play, we believe that stockholders should be given the information needed to assess the independence of the board's compensation consultant. This proposal urges Citigroup to disclose facts we think stockholders would view as material to the consultant's independence and the objectivity of its advice.

 

We urge stockholders to vote FOR this proposal.