Payback time

Citi’s say-on-pay defeat puts bank bosses and their boards on notice. Some 55 per cent of the mega-bank’s shareholders voted against its executive compensation plan on Tuesday. That’s a stark change from last year, when virtually all of them approved the bank’s payouts. It’s a good sign that ballots are starting to be used to send a strong message.

Two things have changed. First, 2011 was the first full year Citi operated without taxpayer-funded capital. That meant it was free of the final restraints on paying the top brass. Since the bank had returned to profitability in 2010, chief executive Vikram Pandit received a proper salary and bonus after two years of pocketing a symbolic $1.

Citi did pay senior executives a tad too much. Pandit, for example, took home almost $15 million. That’s a slightly bigger cut of net income than for either JPMorgan’s Jamie Dimon or Wells Fargo’s John Stumpf, both of whom led their banks to better returns on equity than Pandit.

But, the difference wasn’t big enough to warrant the uprising. It’s probably the generous retention package Citi gave Pandit last May that grated. It makes available at least $16.5 million over four years. The targets for him earning $10 million in stock are either vague or woolly, non-financial measures like promoting a culture of responsible finance.

To get the rest – in cash – Pandit need only preside over a combined $12 billion of pre-tax earnings this year and next. The calculation excludes any losses from Citi Holdings, the division being wound down. It would take some kind of calamity for Pandit to miss out. The core business racked up $6.4 billion in the first quarter alone.