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Shareholders nix Citi CEO’s pay raise

By Claes Bell ·
Thursday, April 19, 2012
Posted: 4 pm ET

Bank CEOs everywhere got a wakeup call this week that shareholders may be more ready to hold them accountable for poor performance than they have in the past.

From Pallavi Gogoi of The Associated Press:

Citigroup has become the first Wall Street bank to get a thumbs-down from shareholders over outsize executive pay.

At its annual meeting Tuesday, 55 percent of the bank's shareholders voted against the pay packages granted to Citigroup's top executives, including CEO Vikram Pandit's $15 million for last year and $10 million retention pay.

The vote is advisory and won't force the bank to change its pay practices, but it did send a powerful message of discontent to Citi's leadership.

"This vote is historic," said Eleanor Bloxham, CEO of The Value Alliance, a board advisory firm. "None of the Wall Street firms have received this kind of a review yet."

The vote may be nonbinding, but it's certainly an embarrassment for Pandit and a warning to other bank CEOs that they need to increase profits or else.

And while I'm sure a lot of Americans would be happy to see bank executives get taken down a peg, it's important to note that the interests of bank shareholders and the interests of bank customers aren't always aligned.

It's possible a push to bring in more money could result in national banks trying to staunch the flow of customers leaving over new fees and customer service issues. After all, a customer service expert I interviewed last month says the only way large national banks can turn their businesses around is offering better customer service.

But Citi actually added 3 million new deposit accounts between the first quarter of 2011 and the first quarter of 2012. Despite defections from thousands of disgruntled customers, the large national banks appear to have little trouble signing up new accounts, thanks to huge advertising budgets and a nationwide network of branches.

No, what seems to be the problem for banks is generating more revenue from customers, and as far as checking accounts go, right now that means some combination of cutting costs and increasing fees. So while it may be fun to see bank CEOs sweat a little bit under scrutiny from shareholders, the ultimate result could be more expensive checking accounts and fewer branches at the larger national banks.

What do you think? If you were a bank shareholder, would you want them to increase profits by making fundamental changes and dealing with some of the problems they've been having with customers lately? Or would you want them to simply increase fees on existing customers?

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