(Reuters) - Richard Parsons, who chaired the Citigroup Inc board that lost a
shareholder vote this week on executive compensation, said on Thursday that
directors had failed to adequately explain to investors the methods they
used to determine pay packages.
At Citi's (C.N)
annual meeting on Tuesday, only 45 percent of shareholders endorsed the pay
plan in an advisory vote required under the 2010 Dodd-Frank financial
Under Parsons' chairmanship,
the Citigroup board paid CEO Vikram Pandit $15 million in 2011. Outside
proxy advisory firms used by institutional investors had criticized the pay
plans for leaving too much room for director discretion and not adhering
closely to measurements of Pandit's performance.
The "say on pay" vote was
non-binding, but it was an embarrassing rebuke for the bank by its
In an interview on Thursday,
Parsons said he believes the issue can be dealt with through better
communication. Parsons, who became chairman in 2009, announced in March that
he would retire from the board after the meeting.
"I'm certain that the new
board and the comp committee will engage in serious discussion with the
representatives of the shareholders, particularly the institutional ones,
and that this will not be a problem going forward," he said in Washington on
the sidelines of an event hosted by the Rockefeller Foundation, a
The issue, according to
Parsons, is shareholders' desire to have pay packages tied to very specific
The former chairman said the
board should have done a better job explaining that it was using specific
criteria to determine compensation.
"I think we actually had a
more quantitative approach. We just didn't adequately connect it up with
their sense of the quantitative," he said.
Among other complaints, proxy
advisory firms objected that the board decided in 2011 to give Pandit a
"retention award" of $34.4 million over three years that depends in part on
whether the company has a "culture focused on responsible finance."
The award also depends on
whether the company's Citicorp division earns over two years $12 billion
By using a dollar amount as
the test, the board left the chance that Pandit will get the award based on
the performance of the economy rather than his own work, advisory firm
Glass, Lewis & Co said.
Earlier on Thursday during a
discussion at the Rockefeller event, Parsons cautioned about being too
prescriptive in how executive pay packages are awarded.
"You can't just throw a
formula up against the wall because then you have managers managing to the
formula as opposed to what the business needs," he said in response to a
question from the audience.
On Thursday, Representative
Barney Frank, an author of the 2010 law, heralded the Citi vote and said he
believes it will encourage shareholders of other companies.
"The result should be a
reduction in the excessive levels of compensation to financial company
executives that will leave them still extremely well compensated, but not as
poster children for unfairness in our country," Frank said in a statement.
(Reporting By Dave Clarke in
Washington and David Henry in New York; editing by