Citi Group Question 1

CITI GROUP 6

Citi Group

Question 1I agree with the provisions of theDodd-Frank Act that the shareholders should vote on executivecompensation. The rule serves as a reliable tool to express theinvestors’ view on executive pay. It widened the channels andopened the room for communication between the corporate managers andshareholders on the issue of remuneration. Research conducted on theeffect of financiers’ involvement has revealed both theinformational and accountability component of the policy. Momentsbefore its application, several corporate managers updated their paystructures in the effort to avoid unfavorable votes fromshareholders. Their reaction indicated that the reform instilledaccountability and the implementation of objective pay structures tomanagers. Specifically, it influenced the executives to equate theirpay to the returns they give to the shareholders. The rule stimulatesshareholders’ interest in understanding and playing a part in howthe firms are managed. It is evident that corporate managers oforganizations with high pay benefits, while weak stock prices faceISS objections on their pay plans.Consequently, they are forced to justify their income to theshareholders (Randall et al., 2012). Question 2The argument in support of theproposed $15 million pay package for Citi’s CEO -Virkim Pandit,came from the board of directors. They observed that he had led thecompany through the 2007 financial crisis, and steered it toprofitability as well as set it for future growth. Besides, the boardcontended that the CEO had structured the organization and enabled itto repay its loans. Shareholders and large institutional investorsinitiated the argument against the pay arrangement. They contestedthat the remuneration for management was misaligned with the returnsof the stakeholders. They observed that the share prices had declinedby more than 90 percent since 2006 and Citi bank had failed a stresstest by the Federal Reserve Bank. I agree with the proposal to paythe CEO. The dispute by the shareholders failed to consider that muchof Pundit’s compensation had been deferred subject to meeting hisperformance target. Moreover, the investors did not reflect that theCEO had survived on a salary of $1 in the year 2009 and 2010.Consequently, he was justified to get the income for his depictedefforts to manage the organization during the crisis(Silver-Greenberg &amp Schwartz, 2012).Question 3.The interest of institutionalshareholders was the misalignment of returns between the managementand the shareholders of the organization. They observed that the bankhad failed a stress test by the Federal Reserve indicating that ithad insufficient funds to withstand a severe downturn. Consequently,they felt it was impractical to award such high income to themanagement when the organization was failing. Besides, institutionalfinanciers were interested in seeing an increase in the value oftheir investment shareholders through the prices of the banks stock.As a shareholder, I would use the share returns to make my votingdecisions and therefore, would not support the proposal bearing inmind that the value of the stocks was declining (Tonello, 2013).Question 4.The board of directors ought todisclose all the material facts behind the proposed pay packages. Theshareholders required background information that the CEO earned lessthan his comparable experts in other banks did. The board shouldinform the shareholders that the professional received $1 for twoyears and let the entrepreneurs understand the previous financialsituation of Citi Bank. Furthermore, the board should reveal thatthey had paid part of the compensation package, and there are chancesfor litigation associated with recalling the money. Provision ofinformation should assist in generating a proper remuneration planfor the CEO (Tonello, 2013) Reference

Randall, S., Palmiter, A. &amp Cotter, J. (2012). Dodd-Frank’s sayon pay: Will it lead to a greater role for shareholders in corporategovernance. Cornell Law Review, 5(97), 1213-1266.Retrieved fromhttp://scholarship.law.cornell.edu/cgi/viewcontent.cgi?article=3247&ampcontext=clr

Schwartz, N. &amp Silver-Greenberg, J. (2012, April 17). Citigroup’schief rebuffed on pay by shareholders. New York Times.Retrieved on 05, September 2016fromhttp://dealbook.nytimes.com/2012/04/17/citigroup-shareholders-reject-executive-pay-plan/

Tonello, M. (2013, September 6). When Do Shareholders Care About CEOPay? Harvard Law School Forum. Retrieved fromhttps://corpgov.law.harvard.edu/2013/09/06/when-do-shareholders-care-about-ceo-pay/

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