This excerpt taken from the C DEF 14A filed Mar 14, 2006.
The Personnel and Compensation Committee (the Committee) is responsible for evaluating the performance of and determining the compensation for the Office of the Chairman and the Chief Executive Officer and approving the compensation structure for senior management, including the Operating Committee, members of the business planning groups, the most senior managers of corporate staff and other highly paid professionals, in accordance with guidelines established by the Committee from time to time. The Committee regularly reviews the design and structure of Citigroups compensation program to assure that managements interests are aligned with stockholders and that the compensation programs are aligned with Citigroups strategic priorities.
Compensation Philosophy. Citigroup seeks to attract and retain a highly qualified global workforce to deliver superior short-term and long-term performance that builds stockholder value. To achieve these objectives, the Companys compensation programs are guided by the following principles:
The Committee implements this philosophy by reviewing the following factors:
Business Performance. Performance is measured at the business unit level and on a company-wide basis. In determining business performance as part of the compensation review process, the Committee reviewed revenue, net income, earnings per share, return on equity, return on capital, tier ratios and long-term stockholder return on an absolute basis and relative to industry performance.
Individual Performance. Performance is also measured at the individual level, taking into consideration both the executives contribution to business performance and how the executive manages his or her areas of responsibility for the long-term. This includes leadership, talent development, risk management, compliance and controls, audit results, franchise expansion, customer satisfaction, commitment to diversity,
employee feedback, corporate governance, contributions to both operating unit and company-wide achievement and, of course, adherence to the Shared Responsibilities.
Competitive Marketplace. The Committee reviews competitive compensation practices as well as compensation levels at peer group companies.
Stock Ownership. As described on page 14 of Citigroups proxy statement, Citigroup has long encouraged stock ownership by its directors, officers and employees to align their interests with the interests of stockholders. Accordingly, a significant portion of total compensation is delivered in the form of equity. The percentage of pay delivered in the form of equity incentives increases as the level of compensation increases. Citigroup believes that equity should be provided not only to senior executives, but more broadly to the global employee population at all levels.
Consistent with Citigroups longstanding policy, senior executives are required to retain 75% of the equity acquired by them so long as they are employed by Citigroup and, beginning in 2006, an expanded group of employees became subject to a 25% stock ownership commitment. With that expansion, approximately 3,000 employees are subject to a stock ownership commitment. In addition, stock delivered to employees on the exercise of a stock option is subject to a two-year sale restriction.
Independence. All members of the Committee are independent directors. In addition, the Committee retains an independent compensation consultant. The consultant provides market data and assists the Committee in its review and establishment of compensation levels for executive officers.
Components of Compensation. Citigroups compensation programs aim to provide a mix of cash and equity incentives appropriate to each business unit and each employees level of expertise and contribution. Compensation for senior management consists of base salary and performance-based discretionary incentive and retention awards.
Tally Sheets. As part of the compensation review process, the Committee reviewed a tally sheet for every member of the Operating Committee that described each element of cash and long-term equity compensation awarded, retirement benefits and perquisites as well as the amounts the executive would receive under different termination scenarios.
Base Salary. Base salary is capped at $1 million for the CEO and the four other most highly compensated executive officers (the covered executives).
Discretionary Incentive and Retention Awards. Discretionary incentive and retention awards include both cash and equity components. The percentage delivered in the form of equity increases as the total award size increases. All executive officers, including the covered executives, received 40% of their awards in restricted or deferred stock under the Capital Accumulation Program (CAP). CAP awards are long-term incentives designed to increase retention and relate directly to the enhancement of stockholder value. The terms and conditions of CAP awards, including the vesting periods, the stock option election and provisions regarding termination of employment are the same for executive officers as for all other CAP participants, and are described in more detail in the footnotes to the Summary Compensation Table contained in Citigroups proxy statement.
CAP awards are granted to a significant percentage of Citigroups global workforce. Approximately 48.1 million shares were awarded to approximately 34,000 employees in 80 countries around the world under the CAP program in January of 2006.
Of the total number of CAP shares granted in January 2006, 2.2 million shares were granted to executive officers, representing 4.6% of the total number of shares granted, and .04% of the total number of shares of Citigroup outstanding on the record date.
Deferred Compensation and Retirement Benefits. Citigroup does not sponsor any active nonqualified deferred compensation plans for the covered executives. Except for deferrals at the election of Mr. Rubin of the cash portion of awards he has received, and deferrals under the qualified Citigroup 401(k) Plan, the covered executives do not defer any current cash compensation on an elective or nonelective basis. The covered executives are not currently accruing any nonqualified retirement benefits under plans sponsored by Citigroup. Employees who earn $100,000 or less are eligible for a company provided match under the Citigroup 401(k) Plan. Higher paid employees are not eligible for the matching contribution.
Health and Welfare Programs. With the exception of certain contractual arrangements provided to Mr. Weill that are described on page 48, executive officers are eligible to participate in company-sponsored welfare benefit programs on the same terms and conditions as those made available to employees generally. Under Citigroups guidelines, employees who are compensated at higher levels pay more to participate in health and welfare benefit programs, allowing lower paid employees to participate at a lesser cost. Citigroup does not subsidize long-term disability benefits for higher paid employees. Disability benefits are fully subsidized for employees earning $50,000 or less, annually.
Employment Agreements and Severance Arrangements. Except for the employment agreements with Mr. Weill and Mr. Rubin, none of the other covered executives has an employment agreement or severance arrangement which offer a higher level of benefits than those applicable to the general employee population.
Special Retention Awards. When appropriate, Citigroup will grant retention awards to high performing employees in order to induce them to remain with Citigroup. Mr. Prince was granted a retention award of restricted stock in July of 2003 in connection with the transition of the CEO role from Mr. Weill. This award will vest in July of 2008, provided Mr. Prince remains employed by Citigroup throughout the five-year vesting period.
Change in Control Payments. Citigroups board adopted a resolution in 2002 specifically prohibiting cash payments to a departing executive officer in the event of a change of control that would equal or exceed 3 times the executive officers annual income.
Talent Development and Succession Planning. The Committee reviews Citigroups talent and executive development programs with senior management. Talent reviews are conducted every year in each business around the world and focus on executive development and ongoing succession planning throughout the organization, at the business head level and at the CEO level. This process culminates each year with an annual talent review presented by senior management to the board.
Tax Deductibility of Executive Bonuses. To secure the deductibility of bonuses awarded to the covered executives, other than Robert Rubin, bonuses paid to the covered executives have been awarded under the 1999 Citigroup Executive Performance Plan (the Compensation Plan). Mr. Rubins compensation however, is governed by an employment agreement, which is described on page 48 of Citigroups proxy statement, and therefore his 2005 bonus was not awarded under the Compensation Plan. Under the Compensation Plan, the deductibility of any bonus for covered executives is contingent upon Citigroup achieving at least a 10% return on equity, as defined in the Compensation Plan.
The Committee certified that in accordance with Section 162(m) of the Internal Revenue Code, Citigroups financial results satisfied the performance criteria set forth in the Compensation Plan for 2005.
While the Committee currently seeks to preserve deductibility of compensation paid to the covered executives under Section 162(m) of the Internal Revenue Code, it recommends maintaining flexibility to provide compensation arrangements necessary to recruit and retain outstanding executives.
2005 Compensation. The Committee conducted a preliminary review of financial and individual performance measures and compensation levels toward the end of 2005 and a final review after year-end results were finalized. The following summarizes the factors reviewed by the Committee:
Financial Performance. Revenue growth, EPS growth, return on equity, return on risk capital and stock performance. These factors were also compared with the financial performance of appropriate competitors.
Dividend Increase. An 11.4% increase in the quarterly dividend announced in January 2006, marking the 21st consecutive year in which Citigroups dividend was increased.
Franchise Development. The allocation of capital to expand distribution channels across the globe and enhance product capabilities in several businesses. The decisions to invest in the development of new technology and to allocate capital to higher-growth businesses, resulting in the divestitures of Travelers Life and Annuity and Citigroups Asset Management business during 2005.
Culture. The leadership demonstrated by Mr. Prince and senior management in embedding the Shared Responsibilities and implementing and communicating the Five Point Plan across the organization to advance Citigroups goal of becoming the most respected global financial services company. The Five Point Plan is discussed in more detail on page 6 of Citigroups proxy statement.
Talent Management. A number of initiatives will bolster and improve existing programs aimed at strengthening the senior leadership team. Mr. Prince and senior management, through a combination of internal moves, new hires and the restructuring of the Global Consumer business, has positioned the company for successful implementation of its strategic initiatives.
2004 Compensation Adjustments. As disclosed in last years proxy statement, the Committee, at the request of Mr. Prince, Mr. Willumstad (with respect to themselves) and Mr. Weill (with respect to himself), reduced the 2004 compensation of certain of the executive officers. For Mr. Prince, Mr. Willumstad and Mr. Weill, the reduction was 15%. For other senior executives, the reduction was 10%. In considering the 2005 compensation of these senior executives, the Committee considered their 2004 compensation prior to these reductions.
CEOs Compensation. Mr. Prince has worked to develop the long-term franchise by allocating capital to the higher-growth businesses, making investments for the long term, and strengthening the senior leadership team. He has demonstrated strong leadership in the development and implementation of the Five Point Plan, communication of the Shared Responsibilities and allocating additional resources to strengthen Citigroups compliance and control environment. Financial results in some businesses were strong while in other businesses they were mixed. In balancing all of these factors, the Committee awarded Mr. Prince a 5% increase in his annual incentive and retention awards (over the initial amount awarded to Mr. Prince last year, prior to the 15% reduction discussed above).
Chairmans Compensation. Mr. Weill continued to offer advice and guidance on broad policies and strategy, work on senior client relationships and government relations, oversee a smooth and orderly transition, and provide input on strategic decisions, including, for example, the Legg Mason transaction. In balancing all of these factors, the Committee awarded Mr. Weill the same level of annual incentive and retention awards that he would have received last year prior to the 15% reduction discussed above.
The independent consultant retained by the Committee reviewed the Committees decision and determined that the compensation provided to Mr. Prince, Mr. Weill and the other covered executives is reasonable and not excessive.
The Committee is pleased to submit this report to Citigroups stockholders and believes that Citigroups pay for performance philosophy reflects its leadership position in the financial services industry.