Citigroup (NYSE: C) remains battered by a slew of lawsuits, and now, one has been filed against the firm over the compensation policies in place for their top executives. Specifically, the suit has been filed by a shareholder against Chief Executive Officer Vikram Pandit and the directors, according to a recent Reuters report.
The firm’s performance has been disappointing on many levels over the preceding years, and the suit alleges that Citigoup’s board continued to award the top executives with excessive compensation packages for them despite that fact. The lawsuit claims such excessive compensation breaches the fiduciary responsibility of the board, having awarded top Citi executives with $54 million in 2011, including $15 million for Pandit. Although cases like this are somewhat rare, it could also be expected – the shareholders recently refused to approve the Citi executive pay packages at the annual shareholders meeting. While competitors like JPMorgan Chase (NYSE: JPM) and even Bank of America (NYSE: BAC) continue to build traction, Citi has failed to enhance shareholder value since the financial crisis, resorting to gimmicks like reverse stock splits to elevate share prices.
The suit has been filed as per a provision of the Dodd Frank Reform Act. The provision in particular is “say on pay” which gives shareholders the right to vote on the compensation of the executives. Citi has responded and terms the case being without any merit, and will seek it’s dismissal.
Compensation packages remain at the forefront of shareholder angst. Frustrated by low share prices and minimal improvements, having such high pay seemingly sends the wrong message to shareholders on the firm’s commitment to returning value to the owners. A counterargument of course could be that while the firm is suffering, it is on a path of long run growth, so paying executives today to retain their skill and intellect is an investment for the future. In light of the continued slow growth in certain share prices of the financial services sector, this lawsuit may simply be the first of many. The Dodd Frank financial regulatory reform opens many possibilities like this, and it could take years to sort through them all.