Citigroup DEF 14A 2005
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
399 Park Avenue
New York, NY 10043
March 15, 2005
We cordially invite you to attend Citigroups annual stockholders meeting. The meeting will be held on Tuesday, April 19, 2005, at 9AM at Carnegie Hall, 154 West 57th Street in New York City. The entrance to Carnegie Hall is on West 57th Street just east of Seventh Avenue.
At the meeting, stockholders will vote on a number of important matters. Please take the time to carefully read each of the proposals described in the attached proxy statement.
Thank you for your support of Citigroup.
Sanford I. Weill
Chairman of the Board
This proxy statement and the accompanying proxy card are being mailed to Citigroup stockholders beginning about March 15, 2005.
399 Park Avenue
New York, NY 10043
Notice of Annual Meeting of Stockholders
Citigroups annual stockholders meeting will be held on Tuesday, April 19, 2005 at 9AM at Carnegie Hall, 154 West 57th Street in New York City. The entrance to Carnegie Hall is on West 57th Street just east of Seventh Avenue. You will need an admission ticket or proof of ownership of Citigroup stock to enter the meeting.
At the meeting, stockholders will be asked to
The close of business on February 25, 2005 is the record date for determining stockholders entitled to vote at the annual meeting. A list of these stockholders will be available at Citigroups headquarters, 399 Park Avenue, New York City, before the annual meeting.
Please sign, date and promptly return the enclosed proxy card in the enclosed envelope, or vote by telephone or Internet (instructions are on your proxy card), so that your shares will be represented whether or not you attend the annual meeting.
By order of the board of directors
Michael S. Helfer
March 15, 2005
Who is soliciting my vote?
The board of directors of Citigroup is soliciting your vote at the 2005 annual meeting of Citigroups stockholders.
What will I be voting on?
How many votes do I have?
You will have one vote for every share of Citigroup common stock you owned on February 25, 2005 (the record date).
How many votes can be cast by all stockholders?
5,216,661,986, consisting of one vote for each of Citigroups shares of common stock that were outstanding on the record date. There is no cumulative voting.
How many votes must be present to hold the meeting?
A majority of the votes that can be cast, or 2,608,330,994 votes. We urge you to vote by proxy even if you plan to attend the annual meeting, so that we will know as soon as possible that enough votes will be present for us to hold the meeting.
Does any single stockholder control as much as 5% of any class of Citigroups voting stock?
Yes, according to an amended Schedule 13G Information Statement filed by State Street Bank and Trust on February 22, 2005, State Street may be deemed to beneficially own 5% of Citigroups common stock. State Street disclaimed beneficial ownership of all such shares in the amended Information Statement.
How do I vote?
You can vote either in person at the annual meeting or by proxy whether or not you attend the annual meeting.
To vote by proxy, you must either
To ensure that your vote is counted, please remember to submit your vote by April 18, 2005.
Citigroup employees who participate in equity programs may receive their proxy cards separately.
If you want to vote in person at the annual meeting, and you hold your Citigroup stock through a securities broker (that is, in street name), you must obtain a proxy from your broker and bring that proxy to the meeting.
Can I change my vote?
Yes. Just send in a new proxy card with a later date, or cast a new vote by telephone or Internet, or send a written notice of revocation to Citigroups Corporate Secretary at the address on the cover of this proxy statement. If you attend the annual meeting and want to vote in person, you can request that your previously submitted proxy not be used.
What if I dont vote for some of the matters listed on my proxy card?
If you return a signed proxy card without indicating your vote, in accordance with the boards recommendation, your shares will be voted for the nominees listed on the card, for KPMG as independent registered public accounting firm for 2005, for the amendments to Citigroups 1999 stock incentive plan and against the other proposals.
How are my votes counted?
You may either vote for or withhold authority to vote for each nominee for the board. You may vote for or against or you may abstain on the other proposals. If you withhold authority to vote with respect to any nominee, your shares will be counted for purposes of establishing a quorum, but will have no effect on the election of that nominee. If you abstain from voting on the other proposals, your shares will be counted as present for purposes of establishing a quorum, and the abstention will have the same effect as a vote against that proposal.
How many votes are required to elect directors and to adopt the other proposals?
Directors are elected by a plurality of the votes cast. The ratification of KPMGs appointment, approval of the amendments to Citigroups 1999 stock incentive plan, and the shareholder proposals each require the affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon in order to be approved.
Can my shares be voted if I dont return my proxy card and dont attend the annual meeting?
If you dont vote your shares held in street name, your broker can vote your shares on any of the matters scheduled to come before the meeting, other than the amendments to Citigroups 1999 stock incentive plan and the stockholder proposals.
If your broker does not have discretion to vote your shares held in street name on a particular proposal and you dont give your broker instructions on how to vote your shares, the votes will be broker nonvotes, which will have no effect on the vote for any matter scheduled to be considered at the annual meeting. If you dont vote your shares held in your name, your shares will not be voted.
Could other matters be decided at the annual meeting?
We dont know of any other matters that will be considered at the annual meeting. If a stockholder proposal that was excluded from this proxy statement is brought before the meeting, we will vote the proxies against the proposal. If any other matters arise at the annual meeting, the proxies will be voted at the discretion of the proxy holders.
What happens if the meeting is postponed or adjourned?
Your proxy will still be good and may be voted at the postponed or adjourned meeting. You will still be able to change or revoke your proxy until it is voted.
Do I need a ticket to attend the annual meeting?
Yes, you will need an admission ticket or proof of ownership of Citigroup stock to enter the meeting. When you arrive at the annual meeting, you may be asked to present photo identification, such as a drivers license. If you are a stockholder of record, you will find an admission ticket attached to the proxy card sent to you. If you plan to attend the meeting, please so indicate when you vote and bring the ticket with you to the meeting. If your shares are held in the name of a bank, broker or other holder of record, your admission ticket is the left side of your voting instruction form. If you dont bring your admission ticket, or opted to receive your proxy materials electronically, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker is an example of proof of ownership. If you arrive at the meeting without an admission ticket, we will admit you only if we are able to verify that you are a Citigroup stockholder.
How can I access Citigroups proxy materials and annual report electronically?
This proxy statement and the 2004 annual report are available on Citigroups Internet site at www.citigroup.com. Click on Corporate Governance, then Financial Disclosure, and then Annual Reports & Proxy Statements. Most stockholders can elect to view future proxy statements and annual reports over the Internet instead of receiving paper copies in the mail.
If you are a stockholder of record, you can choose this option and save Citigroup the cost of producing and mailing these documents in the future by following the instructions provided when you vote over the Internet. If you hold your Citigroup stock through a bank, broker or other holder of record, please refer to the information provided by that entity for instructions on how to elect to view future proxy statements and annual reports over the Internet.
If you choose to view future proxy statements and annual reports over the Internet, you will receive an e-mail message next year containing the Internet address to use to access Citigroups proxy statement and annual report. Your choice will remain in effect until you tell us otherwise. You do not have to elect Internet access each year. To view, cancel or change your enrollment profile, please go to www.InvestorDelivery.com.
If you receive your proxy materials by mail, we sent Citigroups annual report to stockholders for 2004 to you with your proxy statement. If you view your materials on the Internet, the 2004 annual report is available on Citigroups website at www.citigroup.com. We urge you to read these documents carefully.
Five-Year Cumulative Total Return
The following graph and table compare the annual changes in Citigroups cumulative total return for the last five years with the cumulative total return of:
The S&P Financial Index is made up of the following Standard & Poors industry groups: Capital Markets, Commercial Banks, Consumer Finance, Diversified Financial Services, Insurance, Real Estate, and Thrifts & Mortgage Finance.
The Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association (each government sponsored entities) and Citigroup have been excluded from the Index. The Peer Index comprises ABN Amro Holding N.V., J.P. Morgan Chase & Co., The Hartford Financial Services Group, Inc., HSBC Holdings plc, MBNA Corporation, Merrill Lynch & Co., Inc., and Morgan Stanley.
The following graph and table show the value at year-end 2004 of $100 invested at the closing price on December 31, 1999 in Citigroup common stock, the S&P 500, the S&P Financial Index and the Peer Index. The comparisons in this table are set forth in response to Securities and Exchange Commission (SEC) disclosure requirements, and therefore are not intended to forecast or be indicative of future performance of the common stock.
Comparison of Five-Year Cumulative Total Return
The Five Point Plan
Citigroups goal is to be the most respected global financial services company. Beginning March 1, Citigroup is implementing a Five Point Plan, which aims to bring about the changes Citigroup needs to make, both large and small, in how we live up to Our Shared Responsibilities that is, to our clients, to each other, and to our franchise and how we reach our goal to be the most respected global financial services company.
The following are excerpts from Our Shared Responsibilities and The Five Point Plan. You can find the full text at www.citigroup.com/citigroup/press/2005/050214b.htm
Our Shared Responsibilities
The Five Point Plan
The following initiatives will commence in the next 12 to 18 months; some are already underway.
I. Expanded Training: We need to instill in our employees an appreciation for our legacy, platform, opportunities, and Shared Responsibilities, and give them the tools to accomplish our goals.
II. Improved Communications: We need to present a clear and consistent message of Citigroups goal and Shared Responsibilities, celebrate our values and history, and enhance our communication.
III. Enhanced Focus on Talent & Development: We need to deepen our commitment to building and developing our talent and help our managers reach their potential.
IV. Balanced Performance Appraisals & Compensation: We need to strengthen the performance appraisal and compensation process to consistently reinforce our Shared Responsibilities thereby maintaining yet balancing our focus on superior performance.
V. Strengthened Controls: We need to strengthen our independent controls and the control environment throughout Citigroup to support the businesses in their efforts to grow responsibly, minimize mistakes, and to ensure that when mistakes occur, they are handled appropriately.
Citigroup aspires to the highest standards of ethical conduct: doing what we say; reporting results with accuracy and transparency; and maintaining full compliance with the laws, rules and regulations that govern Citigroups businesses. Citigroup continues to set the standard in corporate governance among our peers.
Nomination and Governance Committee
The nomination and governance committees mandate is to review and shape corporate governance policies and identify qualified individuals for nomination to the board of directors. All of the members of the committee meet the independence standards contained in the New York Stock Exchange (NYSE) corporate governance rules and Citigroups Corporate Governance Guidelines, which are attached to this proxy statement as Annex A. A copy of the committees charter is attached to this proxy statement as Annex C.
In April 2004, Citigroup designated the chair of the boards nomination and governance committee, currently Alain J.P. Belda, as lead director. The lead director: (i) presides at all meetings of the board at which the Chairman is not present, including executive sessions of the independent directors; (ii) serves as liaison between the Chairman and the independent directors; (iii) approves information sent to the board; (iv) approves meeting agendas for the board; (v) approves meeting schedules to assure that there is sufficient time for discussion of all agenda items; (vi) has the authority to call meetings of the independent directors; and (vii) if requested, will be available for consultation and direct communication with major shareholders.
The committee considers all qualified candidates identified by members of the committee, by other members of the board of directors, by senior management and by security holders. The committee has engaged Heidrick & Struggles, a third-party firm, to assist in identifying and evaluating potential nominees. Security holders who would like to propose a director candidate for consideration by the committee may do so by submitting the candidates name, résumé and biographical information to the attention of the Corporate Secretary, Citigroup Inc., 399 Park Avenue, New York, NY 10043. All proposals for nomination received by the Corporate Secretary will be presented to the committee for its consideration.
The committee reviews each candidates biographical information and assesses each candidates independence, skills and expertise based on a variety of factors, including the following criteria, which have been developed by the committee and approved by the board:
Application of these factors involves the exercise of judgment by the board.
Based on its assessment of each candidates independence, skills and qualifications and the criteria described above, the committee will make recommendations regarding potential director candidates to the board.
The committee follows the same process and uses the same criteria for evaluating candidates proposed by security holders, members of the board of directors and members of senior management.
Business Practices Committees
Citigroups business practices committees, at the corporate level and in each of its business units, work to ensure that our most senior executives regularly scrutinize our practices and products and potential conflicts of interest; that our policies are appropriate; and that our basic values and Our Shared Responsibilities are emphasized at every level throughout the organization.
Business practices that may raise these concerns are surfaced by a variety of sources within Citigroup, including individual employees, representatives of the various control functions (legal, compliance, risk, audit, tax and financial control) as well as members of the business practices committees.
These issues are subjected to rigorous scrutiny at the business unit level and are reported on a regular basis to the Citigroup business practices committee and the board.
The business practices committees have the authority to make changes to business practices when necessary and appropriate.
Corporate Governance Guidelines
Citigroups Corporate Governance Guidelines embody many of our long-standing practices, policies and procedures, which are the foundation of our commitment to best practices. The Guidelines are reviewed annually, and revised as necessary to continue to reflect best practices. The full text of the Guidelines, as approved by the board, is set forth in Annex A to this proxy statement.
The Guidelines outline the responsibilities, operations, qualifications and composition of the board. Our goal is that at least two-thirds of the members of the board be independent. To this end our board appointed two independent directors, Anne Mulcahy and Judith Rodin, to our board in September and has nominated an additional independent candidate, Klaus Kleinfeld, for election to the board. We had expected to nominate a second independent candidate for election to the board at the annual meeting, but the candidate withdrew from consideration to enter public service shortly before the printing of this proxy statement. We will continue to add independent directors from time to time, to increase the number of independent directors, to replace directors who retire, or for other reasons. A description of our independence criteria and the results of the boards independence determinations are set forth below.
The number of other public company boards on which a director may serve is subject to a case-by-case review by the nomination and governance committee, in order to ensure that each director is able to devote sufficient time to performing his or her duties as a director. Interlocking directorates are prohibited (inside directors and executive officers of Citigroup may not sit on boards of companies where a Citigroup outside director is an executive officer).
The Guidelines require that all members of the committees of the board, other than the executive
committee, be independent. Committee members are appointed by the board upon recommendation of the nomination and governance committee. Committee membership and chairs are rotated periodically. The board and each committee have the power to hire and fire independent legal, financial or other advisors, as they may deem necessary, without consulting or obtaining the approval of senior management.
Meetings of the non-management directors are held as part of every regularly scheduled board meeting and are presided over by the lead director.
If a director has a substantial change in professional responsibilities, occupation or business association, he or she is required to notify the nomination and governance committee and to offer his or her resignation from the board. The nomination and governance committee will evaluate the facts and circumstances and make a recommendation to the board whether to accept the resignation or request that the director continue to serve on the board. If a director assumes a significant role in a not-for-profit entity he or she is asked to notify the nomination and governance committee.
Directors are expected to attend board meetings, meetings of the committees and subcommittees on which they serve and the annual meeting of stockholders. Fourteen of the fifteen directors attended Citigroups 2004 annual meeting.
The nomination and governance committee conducts an annual review of board performance, and each committee conducts its own self-evaluation. The results of these evaluations are reported to the board. Directors have full and free access to senior management and other employees of Citigroup and are provided with an orientation program for new directors and access to continuing education programs. Citigroup has regularly scheduled educational sessions on a variety of topics which all members of the board are invited to attend. The board reviews the personnel and compensation committees report on the performance of the Office of the Chairman, the Chief Executive Officer and the Chief Operating Officer in order to ensure that they are providing the best leadership for Citigroup. The board also works with the personnel and compensation committee to evaluate potential successors to the Chief Executive Officer and the Chief Operating Officer.
If an outside director or an immediate family member of a director serves as a director, trustee or executive officer of a foundation, university, or other non-profit organization and such entity receives contributions from Citigroup and/or the Citigroup Foundation, such contributions will be reported to the nomination and governance committee. If the annual contributions exceed the greater of $250,000 or 10% of the annual consolidated gross revenue of such entity, such contributions shall be given special consideration by the nomination and governance committee and the board for purposes of making the independence determination with respect to the director.
If an outside director serves as an executive officer of a foundation, university, or other non-profit organization and such entity has received, within the preceding three years, annual contributions from Citigroup and/or the Citigroup Foundation that exceed the greater of $1 million or 2% of the annual consolidated gross revenue of such entity, such contributions are required to be disclosed in Citigroups proxy statement.
The Guidelines affirm Citigroups stock ownership commitment, which is described in greater detail in this proxy statement. Citigroup prohibits the repricing of stock options and requires that new equity compensation plans and material revisions to such plans be submitted to stockholders for approval.
The Guidelines restrict certain financial transactions between Citigroup and its subsidiaries and senior management and their immediate families. Personal loans to directors, executive officers, members of the management committee and their immediate family members are permitted only if the loan meets the requirements set forth in the Guidelines, which are described below under Categorical Standards.
The Guidelines prohibit investments by Citigroup or any member of senior management in a partnership or other privately-held entity in which a director is a principal or in a publicly-traded company in which a director owns or controls more than a 10% interest. Directors and their family members are not permitted to receive IPO allocations. Directors and their family members may participate in Citigroup-sponsored investment activities, provided they are offered on the same terms as those offered to similarly situated non-affiliated persons. Under certain circumstances, or with the approval of the appropriate committee, members of senior management may participate in certain Citigroup-sponsored investment opportunities. Finally, there is a prohibition on certain investments by directors and members of senior management in third-party entities when the opportunity comes solely as a result of their position with Citigroup.
The board has adopted categorical standards to assist the board in evaluating the independence of each of its directors. The categorical standards describe various types of relationships that could potentially exist between a board member and Citigroup and sets thresholds at which such relationships would be deemed to be material. Provided that no relationship or transaction exists that would disqualify a director under the categorical standards and no other relationships or transactions exist of a type not specifically mentioned in the categorical standards that, in the boards opinion, taking into account all facts and circumstances, would impair a directors ability to exercise his or her independent judgment, the board will deem such person to be independent. Applying these standards, which are intended to comply with the NYSE corporate governance rules, and all other applicable laws, rules and regulations, the board has determined that each of the following directors standing for re-election is independent: C. Michael Armstrong, Alain J.P. Belda, George David, Kenneth T. Derr, John M. Deutch, Ann Dibble Jordan, Dudley C. Mecum, Anne M. Mulcahy, Richard D. Parsons, Judith Rodin and Franklin A. Thomas. The board has also determined that Klaus Kleinfeld, a nominee for election to the board, is independent.
Neither a director nor any immediate family member shall:
In addition, no member of the audit and risk management committee, nor any immediate family member of such individual, nor any entity in which an audit and risk management committee member is a partner, member or executive officer shall:
Annual contributions to a foundation, university, or other non-profit organization of which a director or an immediate family member serves as a director, trustee or executive officer may not exceed the greater of $250,000 or 10% of the annual consolidated gross revenue of the entity.
For purposes of these independence standards, (i) the term family member means any of the directors spouse, parents, children, brothers, sisters, mother- and father-in-law, sons- and daughters-in-law, and brothers- and sisters-in-law and anyone (other than domestic employees) who shares the directors home; (ii) the term immediate family members of a director means the directors spouse and other family members (including children) who share the directors home or who are financially dependent on the director; and (iii) the term primary business affiliation means an entity of which the director is an officer, partner or employee or in which the director holds at least a 5% equity interest.
Stockholders who wish to communicate with a member or members of the board of directors, including the lead director or the non-management directors as a group, may do so by addressing their correspondence to the board member or members, c/o the Corporate Secretary, Citigroup Inc., 399 Park Avenue, New York, NY 10043. The board of directors has unanimously approved a process pursuant to which the office of the Corporate Secretary will review and forward correspondence to the appropriate person or persons for response.
Code of Ethics
The board has adopted a Code of Ethics for Financial Professionals governing the principal executive officers of Citigroup and its reporting subsidiaries and all Citigroup professionals worldwide serving in a finance, accounting, treasury, tax or investor relations role. A copy of the Code of Ethics is available on our website at www.citigroup.com. Click on Corporate Governance and then Code of Ethics for Financial Professionals. It has also been filed as an exhibit to our 2002 Annual Report on Form 10-K. We intend to disclose amendments to, or waivers from, the Code of Ethics, if any, on our website.
Citigroup strongly encourages employees to raise possible ethical issues. We maintain an ethics hotline that is available 24 hours a day, seven days a week with live operators who can connect to translators in multiple languages, to receive reports of ethical concerns or incidents, including, without limitation, concerns about accounting, internal controls or auditing matters. Callers may choose to remain anonymous. We prohibit retaliatory action against any individual for raising legitimate concerns or questions regarding ethical matters, or for reporting suspected violations. Calls are received by a third party vendor which reports the calls to Citigroup Global Compliance for review and investigation.
Code of Conduct
The board has adopted a Code of Conduct which outlines the principles, policies and laws that govern the activities of Citigroup and its employees, agents and representatives and establishes guidelines for professional conduct in the workplace. Every employee is required to read and follow the Code of Conduct. A copy of the Code of Conduct is available on our website at www.citigroup.com. Click on Corporate Governance and then Code of Conduct. In 2005, Citigroup commenced an ethics and Code of Conduct training course for Citigroup employees.
Citigroup has long encouraged stock ownership by its directors, officers and employees to align their interests with the long-term interests of stockholders. We believe that these policies, which are a unique and distinguishing characteristic of Citigroup, have been a significant factor in the superior financial results we have achieved for Citigroups stockholders.
As part of our commitment to aligning employee and stockholder interests approximately 120 members of senior management and all members of the board of directors have agreed to enter into a stock ownership commitment under which theyve agreed to hold 75% of the Citigroup stock they own on the date they become subject to the commitment and 75% of the shares they acquire from Citigroup while they remain directors or members of senior management.
For these purposes, senior management includes:
In 2005, Citigroup introduced an expanded version of the stock ownership commitment, with a 25% holding requirement that applies prospectively and generally covers those employees who report directly to a member of the Citigroup management committee and those employees one level below them. After the expansion of the stock ownership commitment becomes effective in 2006, approximately 3,000 employees around the world will be subject to Citigroups stock ownership commitment.
Expanding the stock ownership commitment to a broader group of employees underscores Citigroups belief that the stock ownership commitment has played, and will continue to play, a significant role in driving Citigroups success in creating long-term value for its stockholders.
Exceptions to the stock ownership commitment may be granted in connection with charitable gifts, gifts to family members in connection with estate planning, and transactions with Citigroup in connection with exercising employee stock options or paying withholding taxes under equity compensation programs, and in certain other limited situations, when circumstances warrant, such as divorce or other significant family event.
Citigroup also seeks to encourage stock ownership in the following ways:
The following table shows the beneficial ownership of Citigroup common stock by our directors, nominees and certain executive officers at March 4, 2005.
(A) The share numbers in these columns have been restated to reflect equitable adjustments made to all Citigroup options outstanding on August 20, 2002 in respect of the distribution to all stockholders of shares of Travelers Property Casualty Corp. Such adjustments are more fully detailed in footnote C to the Summary Compensation Table below.
At March 4, 2005, no director, nominee or executive officer owned
however, all of the directors and executive officers as a group beneficially owned approximately 1.14% of Citigroups common stock.
Some of the Citigroup shares shown in the preceding table are considered as beneficially owned under SEC rules, but are shares
as shown in the following table:
The following table contains information regarding the only person we know of that beneficially owns more than 5% of our common stock.
Proposal 1: Election of Directors
The board of directors has nominated all of the current directors for re-election at the 2005 annual meeting, except Andrall E. Pearson who will be retiring from the board, effective at the annual meeting, and has nominated an additional candidate, Dr. Klaus C. Kleinfeld, for election to the board. Dr. Kleinfeld was recommended to the board by a non-management director and Heidrick & Struggles, a third-party search firm. Due to prior business commitments, Dr. Kleinfeld will not be able to commence his service as a member of the Citigroup board until July of 2005. As such, stockholders are being asked to elect him for a term commencing July 18, 2005 and ending at the annual meeting of stockholders in 2006. Assuming stockholders approve his election by the requisite number of votes, in July of 2005 the board will vote to increase the size of the board by one member and, with the approval of stockholders, appoint Dr. Kleinfeld as a member of the board.
The following tables give information provided by the nominees about their principal occupation, business experience, and other matters.
The board of directors recommends that you vote for each of
the following nominees
The one-year terms of all of Citigroups directors expire at the annual meeting. Directors are not eligible to stand for re-election after reaching the age of 72, other than Sanford Weill, who, pursuant to his employment agreement, has agreed to serve as Chairman of the Board until the annual meeting in 2006.
Meetings of the Board of Directors and Committees
The board of directors met 12 times in 2004. During 2004, the audit and risk management committee met 11 times, the personnel and compensation committee met 8 times and the nomination and governance committees met 10 times.
Each director attended at least 75 percent of the total number of meetings of the board of directors and board committees of which he or she was a member in 2004.
Meetings of Non-Management Directors
Citigroups non-management directors meet in executive sessions without any management directors in attendance each time the full board convenes for a regularly scheduled meeting, which is usually 7 times each year, and, if the board
convenes a special meeting, the non-management directors may meet in executive session if the circumstances warrant. The lead director presides at each executive session of the non-management directors.
Committees of the Board of Directors
The standing committees of the board of directors are:
The executive committee, which acts on behalf of the board if a matter requires board action before a meeting of the full board can be held.
The audit and risk management committee, which assists the board in fulfilling its oversight responsibility relating to (i) the integrity of Citigroups financial statements and financial reporting process and Citigroups systems of internal accounting and financial controls; (ii) the performance of the internal audit function Audit and Risk Review; (iii) the annual independent integrated audit of Citigroups consolidated financial statements and internal control over financial reporting, the engagement of the independent registered public accounting firm and the evaluation of the independent registered public accounting firms qualifications, independence and performance; (iv) policy standards and guidelines for risk assessment and risk management; (v) the compliance by Citigroup with legal and regulatory requirements, including Citigroups disclosure controls and procedures; and (vi) the fulfillment of the other responsibilities set out in its charter, as adopted by the board. The report of the committee required by the rules of the SEC is included in this proxy statement.
Subcommittees of the audit and risk management committee cover Citigroups corporate and investment banking businesses, consumer businesses and investment management businesses.
The board has determined that each of Dr. Rodin and Messrs. Armstrong, Belda, David, and Deutch qualifies as an audit committee financial expert as defined by the SEC and, in addition to being independent according to the boards independence standards as set out in its Corporate Governance Guidelines, is independent within the meaning of applicable SEC rules, the corporate governance rules of the NYSE and the Federal Deposit Insurance Corporation guidelines.
The audit and risk management committee charter is attached to this proxy statement as Annex B.
The nomination and governance committee, which is responsible for identifying individuals qualified to become board members and recommending to the board the director nominees for the next annual meeting of stockholders. It leads the board in its annual review of the boards performance and recommends to the board director candidates for each committee for appointment by the board. The committee takes a leadership role in shaping corporate governance policies and practices, including recommending to the board the Corporate Governance Guidelines applicable to Citigroup and monitoring Citigroups compliance with these policies and the Guidelines. The committee also reviews Citigroups Code of Conduct, the Code of Ethics for Financial Professionals and other internal policies to monitor that the principles contained in the Codes are being incorporated into Citigroup culture and business practices.
The board has determined that in addition to being independent according to the boards independence standards as set out in its Corporate Governance Guidelines, each of the members of the nomination and governance committee is independent according to the corporate governance rules of the NYSE.
The nomination and governance committee charter is attached to this proxy statement as Annex C.
The personnel and compensation committee, which is responsible for determining the compensation for the Office of the Chairman, the Chief Executive Officer and the Chief Operating Officer, and approving the compensation structure for senior management, including 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 has
produced an annual report on executive compensation that is included in this proxy statement. Further, the committee approves broad-based and special compensation plans across Citigroup and reviews employee compensation strategies.
Additionally, the committee will regularly review Citigroups management resources, succession planning and talent development activities, as well as the performance of senior management.
The committee is also charged with monitoring Citigroups performance toward meeting its goals on employee diversity.
The board has determined that in addition to being independent according to the boards independence standards as set out in its Corporate Governance Guidelines, each of the members of the personnel and compensation committee is independent according to the corporate governance rules of the NYSE. Each of such directors is a non-employee director, as defined by Section 16 of the Securities Exchange Act of 1934, and is an outside director, as defined by Section 162(m) of the Internal Revenue Code (IRC).
The personnel and compensation committee charter is attached to this proxy statement as Annex D.
The public affairs committee, which is responsible for reviewing Citigroups policies and programs that relate to public issues of significance to Citigroup and the public at large and reviewing relationships with external constituencies and issues that impact Citigroups reputation. The committee also has responsibility for, among other things, reviewing political and charitable contributions made by Citigroup and the Citigroup Foundation, reviewing Citigroups policies and practices regarding employee and supplier diversity, reviewing Citigroups environmental policies and programs, and reviewing Citigroups policies regarding privacy.
The board has determined that in addition to being independent according to the boards independence standards as set out in its Corporate Governance Guidelines, each of the members of the public affairs committee is independent according to the corporate governance rules of the NYSE.
The public affairs committee charter is attached to this proxy statement as Annex E.
The charters attached to this proxy statement are also available free of charge on Citigroups website at www.citigroup.com under the Corporate Governance page or by writing to Citigroup Inc., Corporate Governance, 425 Park Avenue, 2nd floor, New York, NY 10043.
The following table shows the current membership of each committee.
Directors compensation is determined by the board. Since its initial public offering in 1986, Citigroup has paid outside directors all or a portion of their compensation in common stock, to assure that the directors have an ownership interest in common with other stockholders. Effective January 1, 2005, non-employee directors, other than Roberto Hernández who, except as described below, has waived receipt of compensation for his services as a director, and the honorary director receive an annual cash retainer of $75,000 and a deferred stock award of $150,000. The deferred stock award is granted on the same date annual incentives are granted to the senior executives. The deferred stock award vests on the second anniversary of the date of the grant, and directors may elect to defer receipt of the award beyond that date. Directors may elect to receive all or a portion of the cash retainer in the form of common stock, and directors may elect to defer receipt of this common stock. Directors also may elect to receive all or a portion of their total compensation in the form of an option to purchase shares of Citigroup common stock. Stock options are granted on the same date that stock options are granted to the senior executives. The number of shares in the option grant is calculated by dividing the dollar amount elected by the fair market value of Citigroup common stock on the grant date and multiplying that amount by four. The fair market value is defined as the closing price of Citigroup common stock on the NYSE on the trading day immediately preceding the grant date. The options vest and become exercisable on the second anniversary of the grant date and expire six years after the grant date.
Directors who are employees of Citigroup or its subsidiaries do not receive any compensation for their services as directors.
Except as described below, directors receive no additional compensation for participation on board committees and subcommittees. Committee and subcommittee chairs receive additional compensation of $15,000, except for the chairs of the audit and risk management committee and each subcommittee thereof who receive $35,000.
This additional compensation is paid in the same manner as the annual cash retainer, but directors may not elect stock options for this portion of their fee. Additional compensation for special assignments may be determined on a case by case basis, but no such additional compensation was paid to any director in 2004; however, in consideration of his service as non-executive chairman of Banco Nacional de México, an indirect wholly owned subsidiary of Citigroup, and other duties and services performed for such entity and its affiliates during 2004, including governmental and client relations and strategic development, Citigroup, or certain of its Mexican affiliates, provided certain security services to Roberto Hernández and members of his immediate family as well as office, secretarial and related services, and airplane and helicopter usage. The aggregate amount of such expenses for Mr. Hernández for 2004 was $1,597,000.
Audit and Risk Management Committee Report
In accordance with its written charter, which was approved in its current form by the Board of Directors on February 18, 2005, the Audit and Risk Management Committee (the Committee) assists the Board in, among other things, oversight of the financial reporting process, including the effectiveness of internal accounting and financial controls and procedures, and controls over the accounting, auditing, and financial reporting practices of Citigroup. A copy of the Committee charter is attached to Citigroups proxy statement as Annex B.
The Board of Directors has determined that all five members of the Committee are independent based upon the standards adopted by the Board, which incorporate the independence requirements under applicable laws, rules and regulations.
Management is responsible for the financial reporting process, the preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, the system of internal controls, including internal control over financial reporting, and procedures designed to ensure compliance with accounting standards and applicable laws and regulations. Citigroups independent registered public accounting firm (independent auditors) is responsible for the integrated audit of the consolidated financial statements and internal control over financial reporting. The Committees responsibility is to monitor and review these processes and procedures. The members of the Committee are not professionally engaged in the practice of accounting or auditing and are not professionals in those fields. The Committee relies, without independent verification, on the information provided to us and on the representations made by management regarding the effectiveness of internal control over financial reporting, that the financial statements have been prepared with integrity and objectivity and that such financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The Committee also relies on the opinions of the independent auditors on the consolidated financial statements and the effectiveness of internal control over financial reporting.
During fiscal year 2004 the Committee had eleven meetings and six educational sessions. In addition, the Global Consumer Audit and Risk Management Subcommittee, the Global Corporate and Investment Bank Audit and Risk Management Subcommittee, and the Investment Management Audit and Risk Management Subcommittee each had four meetings. The Committees regular meetings were conducted so as to encourage communication among the members of the Committee, management, the internal auditors, and Citigroups independent auditors, KPMG LLP. Among other things, the Committee discussed with Citigroups internal and independent auditors the overall scope and plans for their respective audits. The Committee separately met with each of the internal and independent auditors, with and without management, to discuss the results of their examinations and their observations and recommendations regarding Citigroups internal controls. The Committee also discussed with Citigroups independent auditors all matters required by generally accepted auditing standards, including those described in Statement on Auditing Standards No. 61, as amended, Communication with Audit Committees.
The Committee reviewed and discussed the audited consolidated financial statements of Citigroup as of and for the year ended December 31, 2004 with management, the internal auditors, and Citigroups independent auditors. Managements discussions with the Committee included a review of critical accounting policies.
The Committee obtained from the independent auditors a formal written statement describing all relationships between the auditors and Citigroup that might bear on the auditors independence consistent with Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. The Committee discussed with the auditors any relationships that may have an impact on their objectivity and independence and satisfied itself as to the auditors independence.
Effective, January 1, 2003 Citigroup adopted a policy that it would no longer engage its primary independent auditors for non-audit services other than audit-related services as defined by the Securities and Exchange Commission (SEC), certain tax services and other permissible non-audit services as specifically approved by the Chair of the Committee and presented to the full Committee at its next regular meeting. The policy also requires pre-approval of all services provided. During 2004, Citigroup further refined the policy by requiring individual pre-approval by the Committee of all internal control engagements, and also by further restricting the scope of tax services that may be provided by KPMG. Effective December 31, 2004, Citigroup no longer uses KPMG for tax advisory services, including consulting and tax planning, except as related to tax compliance services. The policy also includes limitations on the hiring of KPMG partners and other professionals to ensure that Citigroup satisfies the SECs auditor independence rules. The Committee has reviewed and approved the amount of fees paid to KPMG for audit and non-audit services. The Committee concluded that the provision of services by KPMG is compatible with the maintenance of KPMGs independence.
At four of its meetings during 2004, the Committee met with members of senior management and the independent auditors to review the certifications provided by the Chief Executive Officer and Chief Financial Officer under the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley), the rules and regulations of the SEC and the overall certification process. At these meetings, company officers reviewed each of the Sarbanes-Oxley certification requirements concerning internal control over financial reporting and any fraud, whether or not material, involving management or other employees with a significant role in internal control over financial reporting. In February 2005, the Committee received reports from management and KPMG regarding the effectiveness of internal control over financial reporting pursuant to Section 404 of Sarbanes-Oxley.
Based on the above-mentioned review and discussions with management, the internal auditors, and the independent auditors, and subject to the limitations on our role and responsibilities described above and in the Committee charter, the Committee recommended to the Board of Directors that Citigroups audited consolidated financial statements be included in Citigroups Annual Report on Form 10-K for the fiscal year ended December 31, 2004, for filing with the SEC.
THE AUDIT AND RISK MANAGEMENT COMMITTEE:
C. Michael Armstrong (Chair)
Alain J.P. Belda
John M. Deutch
Dated: February 18, 2005
Report of the Personnel and Compensation Committee on Executive Compensation
The Personnel and Compensation Committee (the Committee) is responsible for evaluating the performance of and determining the compensation for the Office of the Chairman, the Chief Executive Officer and the Chief Operating Officer and approving the compensation structure for senior management, including 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 Citigroups compensation structure to assure alignment with Citigroups strategic priorities and consults with management regarding design changes to Citigroups compensation programs.
Compensation Philosophy. Citigroup seeks to attract and retain a highly qualified workforce at all levels. 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. Citigroups compensation philosophy is guided by:
Competitive Marketplace: Compensation levels should be competitive with the marketplace in order to attract and retain high performing executives. The Committee reviews competitive compensation practices as well as compensation levels at peer group companies.
Performance: Performance should be based on a broad mix of factors rather than focusing on a single metric so as to avoid encouraging focus on one performance measure at the expense of others. The level and form of compensation delivered to Citigroups executive officers is based on the business and individual performance.
Business Performance: Performance should be measured at the business unit level and company wide. Both measures are used to evaluate compensation levels for Citigroups executives. The Committee reviewed net income, earnings per share, return on equity, return on capital, and long term shareholder return as part of the compensation review process.
Individual Performance: Compensation levels should also be tied to individual performance, taking into consideration both the executives contribution to the 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 control environment, franchise expansion, customer satisfaction, corporate governance, adherence to corporate values, and contributions to both operating unit and company-wide achievement.
Stock Ownership: As described on page 13 of this proxy statement Citigroup has long encouraged stock ownership by its directors, officers and employees to align their interests with the interests of stockholders. A significant portion of compensation should be delivered in the form of equity. The percentage of pay delivered in the form of equity incentives should increase as the level of compensation increases. Citigroup believes that equity should be provided, not only to senior executives, but more broadly to a 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. Beginning in 2006, an expanded group of approximately 3,000 employees will be subject to a 25% stock ownership commitment.
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. Compensation for senior executives consists of base salary and performance-based discretionary incentive and retention awards.
Base Salary. Base salary is capped at $1 million for the named executive officers.
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 named executive officers received 40% of their awards in restricted or deferred stock under the Capital Accumulation Program (CAP), as a combination of Core CAP and Supplemental CAP, which vest over 4 years and are canceled upon a voluntary termination of employment (unless the age and service rules have been met) or a termination for cause. Core CAP awards are granted at a 25% discount. 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 this proxy statement.
CAP awards are granted to a significant percentage of Citigroups global workforce. Approximately 44.3 million shares were awarded to approximately 30,000 employees in 82 countries around the world under the CAP program in January of 2005.
Of the total number of CAP shares granted in January 2005, 1.1 million shares were granted to executive officers, representing 2.5% of the total number of shares granted, and .02% of the total number of shares of Citigroup outstanding on the record date.
Employees who receive CAP awards may elect to receive a portion of their award in the form of a stock option. None of the executive officers elected to receive an option grant as part of their incentive award in January 2005. Of the approximately 44.3 million shares awarded under CAP in January 2005, employees who elected to receive stock options as a part of their CAP award received 4.4 million options, at a 4:1 ratio, in lieu of 1.1 million CAP shares.
Consistent with Citigroups view that equity awards are granted with a long-term view, stock options, when elected, may not be cashed out as the shares delivered following an exercise are subject to a 2-year sale restriction.
Deferred Compensation and Retirement Benefits. Citigroups nonqualified pension programs no longer provide accruals for the covered executives or for most employees covered by Citigroups broad-based qualified pension plan, as described on page 45 of Citigroups proxy statement. In connection with the acquisition of certain businesses, accruals are currently provided for only limited groups of employees, which include executive officers, who satisfied certain age and service-related conditions for grandfathering under prior nonqualified pension programs. The cash portion of Mr. Rubins incentive award is deferred consistent with his employment agreement. Except for cash deferrals under the Citigroup 401(k) plan, no other executive officer defers any cash compensation. Employees who earn $100,000 or less are eligible for a company-provided match under the Citigroup 401(k) plan. Higher paid employees, including the executive officers, are not eligible.
Health & Welfare Programs. Covered Executives are eligible to participate in company-sponsored welfare benefit programs on the same terms and conditions as those made available to employees generally, other than benefits provided pursuant to contractual arrangements, as described on page 47 of Citigroups proxy statement. Under Citigroups guidelines, employees who are compensated at higher levels pay a higher percentage of their income to participate in these welfare benefit programs, allowing lower paid employees to participate at a lesser cost. Medical insurance premiums are higher for higher paid employees. Citigroup does not subsidize long-term disability benefits for higher paid employees. Long-term disability benefits are fully subsidized for employees earning less than $50,000 annually.
Employment Agreements and Severance Arrangements. Except for the employment agreements with Mr. Weill and Mr. Rubin, none of the other executive officers of Citigroup has employment protection agreements or severance arrangements which offer a higher level of benefits than those applicable to the general employee population.
Special Retention Awards. When appropriate, Citigroup will grant special retention awards to high performing employees in order to induce them to remain with Citigroup. Mr. Prince and Mr. Willumstad were each granted special retention awards of deferred stock in July of 2003 in connection with the transition of the CEO role from Mr. Weill. These awards will vest at the end of a five year period beginning on the grant date, provided they have remained 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 that would equal or exceed 3 times the executive officers annual income in the event of a change of control.
Talent Development and Succession Planning. The CEO transition process in 2003 was executed seamlessly. The Committee reviews Citigroups talent and executive development programs with senior management. Talent reviews are conducted every year in each business around the world, with emphasis placed on internal mobility (and where appropriate, cross business mobility), executive development for senior managers and ongoing succession planning, both at the CEO level, the business head level and throughout the organization. This process culminates each year with an annual Talent Review presented by senior management to the Board of Directors.
Executive Performance Plan. To secure the deductibility of bonuses awarded to the named executive officers (the Plan Executives), bonuses to these executives have been awarded under the 1999 Citigroup Executive Performance Plan (the Compensation Plan). However, as Robert Rubins compensation is governed by an employment agreement (the Employment Agreement), which is described on page 47 of Citigroups proxy statement, his bonus was not awarded under the Compensation Plan. Under the Compensation Plan, the creation of any bonus pool for Plan Executives is contingent upon Citigroup achieving at least a 10% return on equity, as defined in the Compensation Plan. The amount of the bonus pool is calculated based upon the extent to which the return on equity equals or exceeds the 10% minimum threshold. The Committee has the discretion to reduce or eliminate payments under the Compensation Plan to account for results relative to subjective factors, including an executives individual performance.
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.
While the Committee currently seeks to preserve deductibility of compensation paid to the Plan 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.
2004 Compensation for Executive Officers. The Committee conducted a preliminary review of performance and compensation levels toward the end of 2004 and a final review after year-end results were finalized, and reviewed Citigroups financial performance, both with and without the impact of the WorldCom litigation and reserve charge and the gain relating to the sale of Citigroups investment in Samba. The following summarizes the factors reviewed by the Committee:
Citigroups management team was faced with many difficult challenges during 2004. In the Committees view, the overall performance and leadership provided by Mr. Prince, as Chief Executive Officer, and Mr. Willumstad, as Chief Operating Officer, in responding to these challenges was excellent while delivering strong financial results in 2004. The Committee felt that the 2003 compensation level for both Mr. Prince and Mr. Willumstad was low, relative to market comparisons, while taking into consideration the fact that their 2003 compensation reflected a partial year in their current roles. In balancing all of these factors, the Committee awarded Mr. Prince and Mr. Willumstad an increase in their annual incentive and retention awards for 2004. Mr. Prince and Mr. Willumstad discussed with the Committee their view that, notwithstanding the relatively strong performance of Citigroup in 2004, in light of several setbacks, like the loss of Citigroups ability to provide private banking services in Japan, it would be appropriate to adjust senior managements compensation to reflect the negative impact such issues had on the franchise. The Committee agreed that an adjustment was appropriate and decided that the 2004 awards for Mr. Prince and Mr. Willumstad should each be reduced by 15%. The amounts stated on page 38 of Citigroups proxy statement reflect this adjustment. In addition, the Committee, Mr. Prince and Mr. Willumstad agreed that the awards to the executives running the Companys major businesses and certain senior staff be reduced by 10% for similar reasons. Mr. Weill asked that his award also be reduced by 15% and the Committee agreed to this request as well.
The independent consultant retained by the Committee reviewed the Committees decision and determined that the compensation provided to the Chairman, CEO, President and COO and the other named executive officers 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.
THE PERSONNEL AND COMPENSATION COMMITTEE:
Richard D. Parsons (Chair)
Alain J.P. Belda
Kenneth T. Derr
Andrall E. Pearson
Dated: January 18, 2005
The tables on pages 38 to 45 show Citigroups compensation for the Chief Executive Officer and our four other most highly compensated executive officers (the covered executives), including salaries and bonuses paid during the last three years and 2004 option grants and exercises. The form of the tables is set by SEC regulations.
Summary Compensation Table
The following table shows the compensation of the covered executives for 2002, 2003 and 2004.
Summary Compensation Table
Notes to Summary Compensation Table
(A) Citigroup provided certain perquisites and personal benefits to the covered executives during 2004, which are described below. These perquisites and personal benefits are appropriately valued and included in the covered executives compensation.
During 2004, the covered executives, and their spouses when traveling with a covered executive, may have used corporate aircraft for personal travel. Three of the covered executives, Sanford Weill, Charles Prince and Robert Willumstad, are required by the Citigroup Senior Officer Security Program, which has been approved by the board, to use corporate transportation, whether the purpose of the travel is business or personal. Covered executives who are not subject to the Senior Officer Security Program, including Mr. Rubin, are permitted to use corporate transportation for personal purposes if the aircraft is otherwise available. To the extent any covered executive used corporate aircraft, a corporate-owned vehicle or any other corporate-provided
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transportation for personal purposes, the usage was treated as a perquisite. For purposes of determining the value of such services, the personal use is calculated based on the aggregate incremental cost to Citigroup. For flights on corporate aircraft, aggregate incremental cost is calculated based on a cost-per-flight-hour charge developed by a nationally recognized and independent service which reflects the direct operating costs of the aircraft, including fuel, additives and lubricants, airport fees and assessments, as well as aircraft landing and parking, customs and permit fees, in-flight supplies and food, and flight planning and weather services. In addition, the flight-hour charge provides for periodic engine and auxiliary power unit overhauling, outside labor and maintenance parts for the airframe, engine and avionics, crew travel expenses and other miscellaneous costs. For corporate provided ground transportation, the aggregate incremental cost to Citigroup was determined to be the value of such transportation.
Corporate-provided transportation was the only perquisite or personal benefit that accounted for 25% or more of the total perquisites and personal benefits received by any of the covered executives with reportable perquisite income. For 2004, perquisite income arising from corporate transportation, together with, in the case of Mr. Weill, the tax gross-up attributable to such perquisite income, represented 55.96%, 77.06%, 100.00% and 81.50%, respectively, of the total perquisites, personal benefits and tax gross-up on perquisites received by Messrs. Weill, Prince, Rubin and Willumstad.
Except as shown in the column entitled Other Annual Compensation in the Summary Compensation Table, no executive officer received other annual compensation during 2004 required to be shown in this column. Sanford Weills, Charles Princes, and Robert Willumstads other compensation includes $309,783, $108,208 and $64,622, respectively, for required use of company transportation and Robert Rubins other compensation includes $459,153 for use of company transportation. An asterisk (*) indicates that the total amount of perquisites or personal benefits paid to an executive officer during the referenced year was less than $50,000, the minimum, under SEC rules, an executive must have received before any amount is required to be shown in this column.
(B) Certain restricted stock and deferred stock awards are issued under CAP. For 2004 all of the covered executives received two awards of deferred stock under CAP, a core CAP award and a supplemental CAP award. Core CAP awards are discounted 25% from market value and represent 25% of the covered executives total incentive (cash and equity). Supplemental CAP awards are not discounted and represent 15% of the covered executives total incentives. Unless the personnel and compensation committee determines otherwise, core CAP is mandatory for Citigroup senior management, to the extent they receive incentive awards, and other employees whose incentive award exceeds a certain threshold (generally $20,000 for U.S. employees and U.S.$50,000 equivalent in local currency for non-U.S. employees). CAP awards vest 25% per year over a four year period, and are canceled upon a voluntary termination of employment or a termination of employment for cause unless the recipient meets certain age and service requirements described below. Following the vesting of each portion of a CAP award, the shares become freely transferable, subject to the stock ownership commitment described above. With respect to awards of restricted stock, from the date of award, the recipient can direct the vote and receives dividends. With respect to awards of deferred stock, the recipient receives dividend equivalents but does not have voting rights with respect to the shares until the shares vest.
The following chart shows the amount of dividends and dividend equivalents, each of which were earned at the same rate as dividends on Citigroups common stock, paid to each of
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the covered executives with respect to their holdings of restricted and/or deferred stock during 2004.
Employees who receive CAP awards may elect to receive all or a portion of their incentive award in non-qualified stock options, in 25% increments. The options vest on the same schedule as the restricted or deferred stock award, have a six-year term, and an exercise price equal to 100% of fair market value on the grant date. If options are elected, four option shares are granted for each share by which the restricted or deferred stock award is correspondingly reduced. None of the covered executives received an option grant as part of their incentive award in January 2005.
For 2004, Sanford Weill, Charles Prince, Robert Druskin, Robert Rubin and Robert Willumstad received core CAP stock awards valued at $4,675,000, $5,383,333, $2,700,000, $4,666,667 and $5,383,333, respectively, and supplemental CAP awards valued at $2,103,750, $2,422,500, $1,215,000, $2,100,000 and $2,422,500, respectively.
For awards granted under CAP for years prior to 2004, the vesting period is three years after the award. If the recipient is still employed by Citigroup at the end of three years, the stock becomes fully vested and freely transferable, subject to the stock ownership commitment described above.
For 2003, Charles Prince, Robert Druskin, Robert Rubin and Robert Willumstad received deferred stock awards under CAP valued at $3,379,500, $2,016,667, $5,000,000 and $3,433,333, respectively. Sanford Weill did not receive a CAP award for 2003 or 2002. All CAP awards to the covered executives for 2002 were made in restricted stock. These awards are included in the amounts set forth in the Summary Compensation Table under Restricted Stock Awards.
On July 15, 2003, each of Charles Prince and Robert Willumstad received retention awards of restricted stock which were issued under the Citigroup 1999 stock incentive plan. The awards are not discounted and vest 100% on the fifth anniversary of the award. For 2002, as part of the overall compensation structure adopted for the Global Corporate and Investment Bank, Smith Barney and Citigroup International, special equity awards were made to certain employees in those businesses in lieu of cash payments. The special equity awards were not discounted and vest over a three-year term, which began on July 12, 2003 with one-sixth of the award vesting every six months after the initial vesting. For 2002, Charles Prince and Robert Druskin, both of whom were officers in the Global Corporate and Investment Bank at the time such awards were made, received such special equity awards of restricted stock in lieu of cash payments.
With respect to the retention and special equity awards, until the shares vest, a recipient may not transfer the shares. After they vest, the shares become freely transferable, subject to the stock ownership commitment described above. From the date of award, the recipient can direct the vote on the shares and receives regular dividends. The 2003 retention awards to Charles Prince and Robert Willumstad were each valued at $15,000,039. The 2002 special equity awards to Mr. Prince and Mr. Druskin were valued at $1,750,000 and $1,562,750, respectively. These awards are included in the amounts set forth in the Summary Compensation Table above under Restricted Stock Awards.
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In accordance with the stock option program guidelines, in lieu of options awarded to them for 2003, each of Charles Prince and Robert Druskin elected to receive shares of deferred stock. Similarly, in accordance with the terms of the stock option program guidelines, in lieu of options awarded to him for 2002, Robert Druskin elected to receive shares of deferred stock. These shares of deferred stock are not discounted, do not vest until three years after the date of the award and are not distributable to the recipients until such time as they are no longer executive officers of Citigroup. From the date of award, the recipient receives dividend equivalents but does not have voting rights with respect to the shares. For 2003, Charles Prince received an award valued at $828,167 and Robert Druskin received an award valued at $414,083. For 2002, Robert Druskin received an award valued at $343,021. These awards are included in the amounts set forth in the Summary Compensation Table above under Restricted Stock Awards.
With respect to restricted and deferred stock awards, generally, if upon termination of employment the sum of the recipients age and years of service is at least 75, the recipient is no longer engaged in his or her business or profession, and with respect to awards granted prior to January 2005, the recipient is at least 55 years old, then such awards will continue to vest on schedule provided the recipient does not compete with Citigroups business operations. With respect to the special equity awards, if upon termination of employment the recipient is at least 55 years old, the sum of the recipients age and years of service is at least 60, and the recipient is no longer engaged in his or her business or profession, then such awards will continue to vest on schedule provided the recipient does not compete with Citigroups business operations. With respect to the retention awards, in order for the awards to vest, the recipient must remain employed by Citigroup for the entire vesting period in order to receive the shares.
In connection with Sanford Weills transition to his role as Chairman of the Board, the vesting of the shares of restricted stock awarded to him in 2002 (in respect of 2001), which would have vested in 2005, was accelerated to December 2003. The total number of shares vested was 178,479.80. The acceleration of the vesting was approved by the personnel and compensation committee and the board.
As of December 31, 2004 (excluding awards that vested in February 2005, but including awards made in January 2005), total holdings of restricted and deferred stock of Citigroup and the market value of such shares for the covered executives was:
The market price of Citigroup common stock at December 31, 2004 was $48.18 per share.
(C) The share numbers in this column have been restated to reflect equitable adjustments made to all Citigroup options outstanding on August 20, 2002 in respect of the distribution to all stockholders of shares of Travelers Property Casualty Corp. For each option grant, the number of options was increased by a factor of 1.0721990 and the exercise price was decreased by a factor of .9326627. The expiration and vesting dates of each option did not change. The total number of options granted to each of the covered executives prior to the adjustment was:
(D) Amounts paid in respect of group term life insurance premiums.
Stock Options Granted Table
The following table shows 2004 stock option grants to the covered executives. The 2004 stock option grants, including reload options, were made under Citigroups equity compensation plans, including the Citigroup 1999 stock incentive plan, the 1997 Citicorp stock incentive plan, or the Travelers Group capital accumulation plan. The value of stock options depends upon a long-term increase in the market price of the common stock: if the stock price does not increase, the options will be worthless; if the stock price does increase, the increase will benefit all stockholders.
The table describes options as either initial or reload. Unless otherwise stated:
Reload Options. Under the reload program, option holders can use Citigroup common stock they have owned for at least six months to pay the exercise price of their options and have shares withheld for the payment of income taxes due on exercise. They then receive a new reload option to make up for the shares they used and had withheld.
Reload options maintain the option holders commitment to Citigroup by maintaining as closely as possible the holders net equity position the sum of shares owned and shares subject to option.
For optionees who are eligible to participate in the reload program, the issuance of a reload option is not a new discretionary grant by Citigroup. Rather, the issuance results from rights that were granted to the option holder as part of the initial option grant. The reload option does not vest (i.e., become exercisable) for six months and expires on the expiration date of the initial grant.
Citigroup no longer grants reload options except to the extent required by the terms of previously granted options.
2004 Option Grants
Notes to 2004 Option Grants Table
(A) The total options outstanding at the end of 2004 for each covered executive is shown as Number of Shares Underlying Unexercised Options at 2004 Year-End in the table 2004 Aggregated Option Exercises and Year-End Option Values below.
(B) Reload options are not new discretionary grants by Citigroup; rather the issuance results from rights that were granted to the option holder as part of the initial option grant.
(C) The Grant Date Present Value numbers in the table were derived by application of a variation of the binomial option pricing model. Until 2004, Citigroup had used a variation of the Black-Scholes option pricing model to calculate the Grant Date Present Values. In order to be consistent with the method used for pricing stock options in its financial statements, Citigroup calculated the Grant Date Present Values in this proxy statement using the binomial option pricing model. The following assumptions were used in employing the binomial model.
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Option Exercises Table
The following table shows the aggregate number of shares underlying options exercised in 2004 and the value at year-end of outstanding options, whether or not exercisable.
2004 Aggregated Option Exercises and Year-End Option Values
Notes to Option Exercises Table
(A) This column shows the number of shares underlying options exercised in 2004 by the covered executives. The actual number of shares received by these individuals from options exercised in 2004 (net of shares used to cover the exercise price and withheld to pay income tax) was:
(B) Value Realized is the difference between the exercise price and the market price on the exercise date, multiplied by the number of options exercised. Value Realized numbers do not necessarily reflect what the executive might receive if he or she sells the shares acquired by the option exercise, since the market price of the shares at the time of sale may be higher or lower than the price on the exercise date of the option. In addition, the Valued Realized numbers do not reflect the tax impact of the exercise. All of the covered executives are subject to the stock ownership commitment, which is described above.
(C) The share numbers in these columns have been restated to reflect equitable adjustments made to all Citigroup options outstanding on August 20, 2002 in respect of the distribution to all stockholders of shares of Travelers Property Casualty Corp. Such adjustments are more fully detailed in footnote C to the Summary Compensation Table above.
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(D) Value of Unexercised In-the-Money Options is the aggregate, calculated on a grant by grant basis, of the product of the number of unexercised options at the end of 2004 multiplied by the difference between the exercise price for the grant and the year-end market price, excluding grants for which the difference is equal to or less than zero.
Except for the retirement benefits provided to the covered executives under the nonqualified pension plans described below and as provided to Sanford Weill under his individual employment agreement as summarized below, the only retirement benefits that are provided to the covered executives are the same benefits available to Citigroup employees generally under Citigroups broad-based tax-qualified retirement plans, the Citigroup pension plan and the Citigroup 401(k) plan. Covered executives participate in such plans on the same basis as all other employees of Citigroup.
Other than the deferral of the cash portion of Mr. Rubins incentive award and cash deferrals made under the Citigroup 401(k) plan, none of the covered executives defer any of their cash compensation. Citigroup does not provide accruals to any non-qualified pension programs and has not done so since 2001. Mr. Weill, Mr. Prince and Mr. Willumstad participated in a supplemental retirement plan that was frozen as of December 31, 1993.
Qualified Pension Plan
U.S. employees are covered by the Citigroup pension plan. Effective January 1, 2002, this plan adopted a single cash balance benefit formula for most of the covered population, including the covered executives. Pension accruals prior to January 1, 2002 were determined under different formulas depending upon a given employees specific employment history with Citigroup. Employees become eligible to participate in the Citigroup pension plan after one year of service, and benefits generally vest after 5 years of service. The normal form of benefit under the Citigroup pension plan is a joint and survivor annuity for married participants (payable over the life of the participant and spouse) and a single life annuity for single participants (payable for the participants life only). Other forms of payment are also available.
The Citigroup cash balance benefit is expressed in the form of a hypothetical account balance. Benefit credits accrue annually at a rate between 1.5% and 6% of eligible compensation; the rate increases with age and service. Interest credits are applied annually to the prior years balance; these credits are based on the yield on 30-year Treasury bonds (as published by the Internal Revenue Service). Although the normal form of the benefit is an annuity, the hypothetical account balance is also payable as a single lump sum, at the election of the participant.
Nonqualified Pension Plans
Effective January 1, 2002, Citigroups nonqualified pension programs no longer provide accruals for most employees covered by Citigroups qualified pension plan, including the covered executives. Prior to 2002, these nonqualified programs provided retirement benefits for compensation in excess of the IRC compensation limit ($210,000 for 2005), or in respect of benefits accrued in excess of the IRC benefit limit ($170,000 for 2005).
In addition to these programs, there is a supplemental retirement plan that provided additional pension benefits to certain employees for service through the end of 1993. Accruals were frozen as of December 31, 1993. Sanford Weill, Charles Prince and Robert Willumstad participated in this program.
Estimated Annual Benefit Under All Retirement Plans
The estimated annual benefit provided in total by all retirement plans described above, expressed in the form of a single life annuity, is as follows:
(A) These estimates are based on the following assumptions:
(B) In addition, pursuant to his employment agreement, as described below, Sanford Weill is entitled to receive a supplemental pension benefit equal to a $350,000 annual lifetime annuity.
Employment Contracts and Arrangements
Mr. Weill and Mr. Rubin have entered into employment agreements with Citigroup, which are described in detail below. Messrs. Prince, Druskin, and Willumstad do not have any individual employment or severance agreements. Covered executives do not receive any perquisites following retirement other than those to be provided to Sanford Weill under his employment agreement, which is described below.
In 1986, Citigroups predecessor entered into an agreement with Sanford Weill (amended in 1987, 2001 and 2003). Under the agreement, as amended, Mr. Weill has agreed to serve as the Chairman of the Board of Citigroup until the 2006 annual meeting of stockholders, unless his employment is terminated earlier in accordance with the agreement. The agreement provides that Mr. Weill will receive an annual salary, incentive awards, and employee benefits as determined from time to time by the board. If Mr. Weills employment is terminated as a result of illness, disability or otherwise without cause by Citigroup, or following Mr. Weills retirement from Citigroup, all of his stock options will vest and remain exercisable for their full respective terms. In the event Mr. Weills employment is terminated as a result of his death, illness, physical or mental disability or other incapacity, he (or his estate as the case may be) will receive the annual salary and employee benefits in effect immediately prior to such termination through the end of the year during which such termination occurs or for six months following such termination, whichever is greater, and such additional payments relating to incentive, death, retirement, or other matters as may be determined by the board or a committee. In the event his employment is terminated by Citigroup, upon at least 120 days notice, without cause, or by Mr. Weill upon at least 30 days notice in the event of a breach by Citigroup of any of its obligations under the agreement, he will receive a lump sum amount in cash equal to the sum of his annual salary in effect prior to his termination through the effective date of his termination and the amount paid as his annual bonus for the prior fiscal year, prorated for
the period of his employment during the fiscal year in which the termination occurs. Following such termination or retirement, Mr. Weill shall be subject to certain non-competition, non-hire, and other provisions in favor o