Besides investigating how shareholder activism at Citigroup Inc (NYSE:C) led to the final approval of its new executive compensation plan, this article aims to examine other positive drivers for the bank, and ways the firm can make use of its outsized deferred-tax assets.
Citigroup Inc (NYSE:C)’s new CEO, Michael Corbat gets an $11.5 million compensation plan, approved by the same shareholders who rejected their former leader’s $15 million pay package. The new top executive’s package includes $4.18 million in cash bonuses and $3.14 million in performance share units (PSUs,) the latest form of executive compensation at Citigroup Inc (NYSE:C). This way, compensation is more competitive, performance-driven, and dependent on strong risk management.
Shareholder activism led to an earlier rejection of former Citigroup Inc (NYSE:C) boss Vikram Pandit’s compensation plan. Citigroup Inc (NYSE:C)’s new performance-based compensation will ensure and encourage executives to focus on long-term stability over short-term profits.
Citigroup Inc (NYSE:C) recently posted a $7.5 billion profit, while last year, its CEO’s total compensation matched that for the CEO of JPMorgan Chase & Co. (NYSE:JPM). JPMorgan reported a $21.3 billion profit.
Jamie Dimon, JPMorgan Chase & Co. (NYSE:JPM)’s CEO, experienced a pay cut of 50% from $23 million after it was concluded that he would take responsibility for a massive trading loss suffered by the firm. Salary figures are taken from this Bloomberg article.
In contrast, Bank of America Corp (NYSE:BAC) which recently posted bottom-line results of $4.2 billion, boosted its top executive’s compensation by more than 70% to $12 million in addition to agreeing to increase the base salary for the current year.
On the end of the spectrum, the CEO at Morgan Stanley (NYSE:MS) saw his compensation drop 7.1% to approximately $9.8 million.
None of the chief executives at the aforementioned banks received cash bonuses, while over at Goldman Sachs Group, Inc. (NYSE:GS), CEO Lloyd C. Blankfein earned a $5.7 million cash bonus, according to Bloomberg.
How Citi can make use of outsized DTAs
Citigroup’s deferred-tax assets (DTAs) have touched $55 billion and are increasing, which is cause for concern among investors. John Gerspach, Citigroup’s CFO, attributed the growth in DTAs to “one-offs,” though little indication was given about when such assets would begin to decline.
Poor performance in Citi Holdings, one of Citigroup’s divisions, is being blamed in part for the growth in DTAs. Asset impairments from Morgan Stanley (NYSE:MS) Smith Barney, a wealth-management venture between Morgan Stanley and Citigroup that was later acquired by Morgan Stanley, added $4.5 billion to DTAs. Fourth quarter re-positioning and the debt value adjustments increased another $1.3 billion.