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State Treasurer rebukes Citigroup

April 19, 2012

Oregon Public Employees Retirement Fund votes against excessive executive salaries in rebuke of Citigroup.   State Treasurer says salaries for executives should be better connected to company performance
Oregon State Treasurer

The Oregon Public Employees Retirement Fund on Tuesday voted against the executive compensation package at Citigroup Inc., helping to send a rebuke in an advisory referendum known as “Say on Pay.”

The chief executive of Citigroup was paid $14.8 million in salary in 2011 and promised an extra $10 million in 2013 as “retention pay,” even though independent analyses showed the banking giant was less profitable than its peers. In addition, federal regulators deemed the company as too weak financially to pay shareholders a proposed dividend.

As a result, a total of 55 percent of shareholders voted to reject the compensation plan for top executives. Among the reasons: Poor link between pay and performance; lack of rigorous long term incentive performance formula; overly discretionary short term payouts; and excessive payouts.

State Treasurer Ted Wheeler said the advisory vote at the Citigroup annual meeting is part of the ongoing scrutiny by Oregon trust funds of corporate executive salaries.

“We are sending a clear message that excessive executive compensation is not in the best interests of shareholders,” said State Treasurer Ted Wheeler. “We invest in companies on behalf of Oregon beneficiaries and we expect those companies to do business the right way, which includes aligning salaries to company performance.”

Oregon beneficiaries of public trust funds such as the Oregon Public Employees Retirement Fund and Oregon Common School Fund are major investors in public companies, collectively owning billions of dollars in stock. As a result, those funds can have a significant voice in how those corporations are run.

At the time of the vote, the Oregon Public Employee Retirement Fund had 1.43 million shares of Citigroup, worth a total of $50.3 million.

As a responsible investor, Oregon interacts with companies in several ways, including directly engaging with executives and also via proxy votes at annual shareholder meetings. The goals: improve corporate responsibility and enhance profitability.

Glass, Lewis & Co., the San Francisco-based firm hired to manage Oregon’s proxy voting priorities, gave Citigroup an “F” grade for the company’s executive compensation plan in 2011.

Glass, Lewis & Co. said in its recommendation to reject the Citigroup salary package: “Having repaid its TARP funds in 2010, the Company was not subject to restrictions governing the structure of compensation paid to its highest-paid executives during 2011. In turn, the Company has implemented incentive plans rampant with significant issues that, in our opinion, warrant shareholder attention. It is clear to us that the Company has squandered the opportunity to form well-designed, objective incentive plans at the lifting of TARP restrictions, opting instead for often discretionary awards that may qualify as a misuse of company capital.”

Oregon’s 2012 proxy season action plan calls for highlighting and also prodding companies to improve through “Say on Pay” shareholder referendums. Under the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010, public companies must offer shareholders the opportunity to vote on executive salary packages at least every three years.

The Oregon Investment Council is responsible for setting the state’s investment policies, which are then administered through the State Treasury.

The State Treasury protects public assets and saves Oregonians money through its investment, banking, and debt management functions. The office also promotes public outreach and education to help Oregonians learn strategies to save money, invest for college and make smart financial choices.

  
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