Citigroup Getting Off Cheap

NEW YORK ( TheStreet) -- Citigroup ( C) CEO Vikram Pandit's new pay package has translated into media coverage featuring headlines screaming the multi-million dollar total.

But Citigroup investors may be getting a bargain, and the bank's approach to executive pay may also point the way forward in the rest of the banking industry, with many features that will please politicians, regulators and investors.

Pandit essentially donated his time during 2010 while leading Citigroup into the later stages of its resuscitation by using a "good bank/bad bank" strategy to shed non-core assets. The new pay package has the potential to reward Pandit handsomely over the next four years, while also including plenty of safeguards to encourage strong performance, and clawback features, in the event of another calamity.
Citigroup CEO Vikram Pandit

According to data provided by SNL Financial, Pandit in 2010 forwent salary and bonus, with his take-home pay of $1.3 million representing only the value realized on the vesting of stock options.

In comparison, Bank of America ( BAC) CEO Brian Moynihan's take-home pay was valued at $2.3 million during 2010 according to SNL, including a base salary of $950,000, $270, 234 in perks and other compensation, and $1,039,287 in value realized when stock options vested.

During 2010, Wells Fargo ( WFC) CEO John Stumpf's take-home pay was valued at $6.6 million, including a base salary of 3.2 million, $3.3 million in non-equity incentive plan compensation, and a relatively small amount of perks.

JPMorgan Chase ( JPM) CEO James Dimon took home a cool $42 million, including a $1 million base salary, a $5 million bonus, $579,624 in perks, $22.9 million in value for excercised options and $12.5 million in value realized on the vesting of stock options.

Pandit's package addresses investor anger over the general lack of clawbacks from executives of so many failed and bailed-out banks and investment firms over the past few years, while rewarding Pandit for steering the company through its transformation through the crisis, capital raises to repay bailout funds received through the Troubled Assets Relief Program and return to profitability.

All three components of Pandit's new package are all tied to performance thresholds.

The $10 million deferred stock award will vest in three equal installments at the end of 2013, 2014 and 2015, only if the board's compensation committee determines that the CEO has satisfied regulatory criteria, such as maintain strong capital ratios; maintained a "an organizational culture focused on responsible finance, conducting business with integrity and serving Citi's customers, measured through performance metrics; and maintain and develop executive talent, including succession plans across senior management.

Pandit's Key Employee Profit Sharing Plan award could total $6,651,600, depending on Citigroup's overall earnings performance.

The 500,000 stock options Pandit was granted "will be subject to the Citi Clawback," if the executive receives options based on materially inaccurate information or if he knowingly reports materially inaccurate information. The options will also be subject to clawbacks if Pandit materially violates "any risk limits established by senior management, a business head and/or risk management, or any balance sheet or working capital guidance provided by a business head."

The clawback stipulation based on exceeding risk limits, as well as the deferred stock awards vesting only if regulatory and managerial criteria are met, directly address problems leading to Citigroup's bailout and, indeed, the mismanagement of so many Wall Street firms.

Considering Citi's size and profit potential from the most diverse international focus among the big four, as well as the new package's four-year span, it would not be surprising to see Citigroup's board of directors to pony up a much larger package for Pandit over the next couple of years.


-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.