Citigroup loses advisory vote on executive compensation

DALLAS (Reuters) - CITIGROUP (C.NY)Inc shareholders gave a vote of no confidence to the bank's executive compensation plan on Tuesday, dealing a surprise embarrassment to Chief Executive Vikram Pandit.

Only 45 percent of shareholders endorsed the pay plan in an advisory vote required under the Dodd-Frank law, Michael Helfer, general counsel and corporate secretary, said at Citi's annual meeting, citing preliminary vote totals.

Citigroup's failed "say on pay" measure is the latest signal that shareholders are turning up the pressure on top executives who have failed to deliver improved performance. Goldman Sachs Group Inc struck a compromise with shareholder activists last month to avoid a similar showdown over board leadership at its annual meeting.

On Monday, Citigroup posted a 2 percent decline in net income for the first quarter from a year earlier, reflecting the bank's difficulties as it works to boost profits in a sluggish global economy. Still, Citigroup shares, up more than 33 percent so far this year, rose 3.9 percent to $35.35 in afternoon trading on the New York Stock Exchange.

Richard Parsons, chairman of the board, called the outcome "a serious matter" and said directors would meet shareholder representatives to discuss their objections.

The Citigroup vote tally surprised some analysts who follow corporate governance issues.

"I would think that, given the amount of public and regulatory attention that Citigroup has had for the last four years, that they would not be in a position to go to a meeting and have a negative investor vote," said Beth Young, a senior research associate for GMI Ratings in New York.

Shareholders are also expected to pressure executives of other companies at annual meetings in the coming weeks, including Janus Capital Group and US Steel . Last week, casino equipment maker International Game Technology got only 44 percent shareholder support for its pay vote.

Citigroup may have upset shareholders by increasing Pandit's pay to $14.8 million last year, similar to executive pay levels before the credit crisis struck, despite the challenges that the bank still faces. Last month, Citigroup was one of only a handful of large financial institutions that failed to win approval from regulators for a dividend increase or share buyback.

Pandit received only a symbolic $1 in 2010, and just $128,741 in 2009, noted Todd Sirras, a partner at the law firm of Semler, Brossy, which tracks the "say on pay" votes.

Another area of concern to proxy advisers was the bank's 2011 retention awards, stock grants aimed at convincing executives not to jump ship, Sirras said.

"Retention awards in the current environment tend to be viewed negatively," Sirras said.

ISS, a research firm that advises institutional investors on corporate proxy issues, recommended siding against the board and voting "no" on the 2011 pay plan. Glass Lewis & Co, another governance advisory firm, recommended voting against the compensation plan.

The majority of Citigroup shares are held by institutional investors, but professional money managers were not an obvious presence at the meeting. Only a few hundred people were in the half-filled ballroom in Dallas.

Shareholders who spoke were small investors or representatives of groups promoting social causes. No representatives of major investment management firms spoke.

(Reporting by David Henry in New York and Ross Kerber in Boston; editing by Aaron Pressman, Andre Grenon and Maureen Bavdek)