Departing Executive Retention of Equity-Based Compensation

2010 – Citigroup

 

 

RESOLVED:  The shareholders of Citigroup Inc. (the “Company”) urge the Board of Directors (the “Board”) to adopt a policy requiring senior executives to retain 75% of all equity-based compensation for at least two years following their departure from the Company, through retirement or otherwise, and to report to shareholders regarding this policy before the Company’s 2011 annual meeting.  The policy should prohibit hedging transactions that are not sales but offset the risk of loss to the executive.  This proposal shall cover only compensation awards under a new equity plan or a compensation agreement with executives.

 

Supporting Statement: Equity-based compensation is an important component of senior executive compensation at our Company.  Because our Company is among those that received the largest taxpayer assistance under the Treasury Department’s Troubled Asset Relief Program (“TARP”), compensation for senior executives must comply with the Treasury Special Master Kenneth Feinberg’s decisions for our senior executives.

     

In our view, requiring senior executives to hold a significant portion of the shares received through compensation plans after they depart from the Company forces them to focus on the Company’s long-term success and better align their interests with that of shareholders.  The absence of such a requirement can allow senior executives to walk away without facing the consequences of actions aimed at generating short-term financial results.  We believe that the current financial crisis has made it imperative for companies to reshape compensation policies and practices to discourage excessive risk-taking and promote long-term, sustainable value creation. 

     

The Aspen Principles, endorsed by the largest business groups including The Business Roundtable and the U.S. Chamber of Commerce, as well as the Council of Institutional Investors and the AFL-CIO, urge that “senior executives hold a significant portion of their equity-based compensation for a period beyond their tenure.”

     

A 2002 report by a commission of The Conference Board endorsed the idea of equity holding requirements for executives, stating that the long-term focus promoted thereby “may help prevent companies from artificially propping up stock prices over the short-term to cash out options and making other potentially negative short-term decisions.”

     

Mr. Feinberg’s compensation decisions require that the majority of base salary be in the form of Company stock that can only be redeemed in three equal installments, beginning on the second anniversary of the grant, or earlier if Citigroup repays its TARP obligations.  And long-term incentive awards in the form of restricted stock may only be redeemed in 25% installments for each 25% of our Company’s TARP obligations that are repaid.

 

In addition to these TARP executive compensation requirements, we believe that senior executives should be required to hold equity awards for at least two years after their departure to ensure they share in both the upside and downside risk of their actions while at the Company.

      

We urge shareholders to vote FOR this proposal.