Citigroup DEF 14A 2006
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 14, 2006
We cordially invite you to attend Citigroups annual stockholders meeting. The meeting will be held on Tuesday, April 18, 2006, 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 14, 2006.
399 Park Avenue
New York, NY 10043
Notice of Annual Meeting of Stockholders
Citigroups annual stockholders meeting will be held on Tuesday, April 18, 2006 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 24, 2006 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 14, 2006
Who is soliciting my vote?
The board of directors of Citigroup is soliciting your vote at the 2006 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 24, 2006 (the record date).
How many votes can be cast by all stockholders?
4,991,118,425, 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 2,495,559,214 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?
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 17, 2006.
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 2006, for the amendments to Citigroups Restated Certificate of Incorporation 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 any stockholder 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. Because the amendments to the Restated Certificate of Incorporation must be approved by a specified percentage of the shares outstanding, if you abstain from voting on any of the charter amendments your shares will be counted for quorum purposes but will have the same effect as a vote against the proposal. If you neither attend the meeting nor vote by proxy, your shares will also be counted as votes against the proposal.
Is my vote confidential?
In January 2006, the board adopted a confidential voting policy as a part of its Corporate Governance Guidelines. Under the policy, all proxies, ballots, and vote tabulations are kept confidential for registered stockholders who request confidential treatment. If you are a registered stockholder and would like your vote kept confidential please check the appropriate box on the proxy card or follow the instructions when submitting your vote by telephone or by the Internet. If you hold your shares in street name or through an employee benefit plan, your shares already receive confidential treatment so you do not need to request confidential treatment in order to maintain the confidentiality of your vote.
The confidential voting policy will not apply in the event of a proxy contest or other solicitation based on an opposition proxy statement. For further details regarding this policy, please see the Corporate Governance Guidelines attached as Annex A to this proxy statement.
How many votes are required to elect directors and to adopt the other proposals?
Directors are elected by a plurality of the votes cast. Recently the board adopted a governance principle that provides if a nominee receives, in an uncontested election, a number of votes withheld from his or her election that is greater than the number of votes cast for the election of the director, such director shall offer to resign from his or her position as a director. Unless the board decides to reject the offer or to postpone the effective date of the offer, the resignation shall become effective 60 days after the date of the election. The text of the principle appears in Citigroups Corporate Governance Guidelines which are attached as Annex A to this proxy statement. The ratification of KPMGs appointment and the stockholder 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. The vote required for the amendments to the Restated Certificate of Incorporation are as follows: (i) the amendments to Articles FOURTH and NINTH must be approved by the affirmative vote of seventy-five percent of the outstanding shares, and (ii) the amendments to Article EIGHTH must be approved by the affirmative vote of sixty-six and two-thirds percent of the outstanding shares.
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 matters that the NYSE has ruled are discretionary.
If you dont vote your shares registered directly in your name, not in the name of a bank or broker, your shares will not be voted.
Could other matters be decided at the annual meeting?
We received notice from Mr. Michael E. Friedman that he intends to submit two proposals concerning customer data security at the annual meeting. In addition, we received notice from Mr. George Longino that he intends to submit a proposal requesting that retirement packages be amended to remove provisions relating to the use of corporate assets after retirement. Both stockholders submitted the proposals under the advance notice provisions of Citigroups by-laws.
If the stockholder proposals are brought before the meeting, we will vote the proxies against the proposals. 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 2005 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 2005 to you with your proxy statement. If you view your materials on the Internet, the 2005 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 table and graph 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 consists of 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.
Following the completion of Citigroups divestitures of its asset management and insurance businesses, Citigroup determined that the companies in the Peer Index no longer accurately reflect Citigroups business profile. Accordingly, beginning in 2007, Citigroup will no longer include the Peer Index in the Performance Graph. Given the diversity of Citigroups businesses and the periodic changes to Citigroups business profile as a result of merger and acquisition activity, the broader mix of companies comprising the S&P Financial Index more accurately reflects Citigroups businesses.
The following table and graph show the value at year-end 2005 of $100 invested at the closing price on December 31, 2000 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 Company We Want to Be
Last year, Citigroup embarked on an extensive Five Point Plan to change our culture and help us achieve our goal to be the most respected global financial services company. The objective of the Plan was to bring about the changes Citigroup needed in order to live up to our Shared Responsibilitiesto our clients, to each other, and to our franchise.
Our Shared Responsibilities
The Five Point Plan
Many initiatives were launched and implemented under the Plan:
We believe that the development and successful implementation of the Five Point Plan has created a solid foundation for the growth of our company in 2006 and the years ahead.
Citigroup continually strives to maintain the highest standards of ethical conduct: 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.
The current charters of the audit and risk management, nomination and governance, and personnel and compensation committees, as well as Citigroups Corporate Governance Guidelines, Code of Conduct and Code of Ethics, are available in the Corporate Governance section of Citigroups website: www.citigroup.com. Citigroup stockholders may obtain printed copies of these documents by writing to Citigroup Inc., Corporate Governance, 425 Park Avenue, 2nd floor, New York, NY 10022.
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) and Pacific Exchange, Inc. (PCX) 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. Stockholders 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 stockholders, members of the board of directors and members of senior management.
For the 2006 annual meeting, we received timely notice of director nominations from two stockholders, each of whom nominated one person to stand for election at the annual meeting. The qualifications of these individuals were discussed at a meeting of the nomination and governance committee in connection with the annual evaluation of all director candidates. After deliberation, the committee decided not to include these individuals on the slate of candidates it proposed to the full board for consideration. The committee used the above-mentioned criteria to evaluate the candidates.
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 at least 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.
In January 2006, the Guidelines were revised to add three new principles relating to confidential voting, recoupment of unearned compensation and majority voting.
Stockholders who own shares through Citigroups equity compensation programs and 401(k) plan already enjoy confidential voting on all matters presented at special and annual meetings, as do stockholders who hold shares in a bank or brokerage account. The boards adoption of a confidential voting provision extends this treatment to stockholders who hold shares in certificate form or via direct registration.
The provision on recouping unearned compensation empowers the board, in all appropriate cases and subject to governing law, in the event of a material restatement of Citigroups financial statements due to the misconduct of an executive officer, to recoup any bonus or incentive compensation paid to such executive officer on account of the misconduct.
The majority vote provision requires a director nominee who receives, in an uncontested election, a number of votes withheld that is greater than the number of votes cast for his or her election to offer to resign from the board, with such resignation to become effective if the board does not reject it within 60 days after the date of the election.
Our goal is that at least two-thirds of the members of the board be independent. 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. All of the directors then in office attended Citigroups 2005 annual meeting.
The nomination and governance committee nominates one of the members of the board to serve as chairman of the board on an annual basis. The nomination and governance committee also conducts an annual review of board performance, and each committee conducts its own self-evaluation. The board and committees may engage an outside consultant to assist in conducting the self-evaluations. 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 a variety of 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 and the Chief Executive 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.
If a 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 at least annually.
The Guidelines affirm Citigroups stock ownership commitment, which is described in greater detail in this proxy statement. 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 Management Committee and those employees one level below them. After the expansion of the stock ownership commitment, which became effective in January 2006, approximately 3,000 employees are subject to a stock ownership commitment. Citigroup also 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 directors, senior management and their immediate families. Personal loans to executive officers and directors of Citigroup and its public issuer subsidiaries and members of the operating committee, or their immediate family members, are prohibited, except for mortgage loans, home equity loans, consumer loans, credit cards, charge cards, overdraft checking privileges and margin loans to employees of a broker-dealer subsidiary of Citigroup made on market terms in the ordinary course of business.
The Guidelines prohibit investments or transactions by Citigroup or its executive officers and their immediate family members 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 executive officers 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 and PCX 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, Klaus C. Kleinfeld, Andrew N. Liveris, Dudley C. Mecum, Anne M. Mulcahy, Richard D. Parsons, Judith Rodin and Franklin A. Thomas.
South Asia Fund Donation
At the request of the President of the United States, Sanford Weill and senior executives from 4 other companies (the Five Executives) (including Anne Mulcahy, Xerox, Jeff Immelt, GE, Hank McKinnell, Pfizer, and Jim Kelly, UPS) have led a private sector effort to aid those harmed by the South Asia earthquake. Working with representatives from the State Department and US AID as well as various staff members from the companies of each of the Five Executives with particular expertise (charitable giving, legal, public affairs, tax, government relations, etc.), a fund for South Asia relief was conceived (the Fund).
Due to the short timeframe, the Committee to Encourage Corporate Philanthropy (CECP), a not-for-profit organization of which Sandy Weill is Chairman and Paul Newman and Ken Derr are Founding Co-Chairs, was chosen, based on its 501(c)(3) status and its mission to encourage corporate philanthropy, to house the Fund. With the approval of the CECP Board, comprised of executives from many corporations, including 2 of Citigroups outside directors (Ken Derr and Dick Parsons), a committee was formed to advise the Fund (comprised of the Five Executives and representatives chosen by the Government) and make recommendations to a committee of the CECP Board on how best to disseminate the donations contributed to the Fund. The CECP Board committee will ultimately cause the donations to be made.
The members of the Board of CECP did not derive any benefit from the choice of CECP to house the Fund, nor do any of them stand to benefit from the relief effort. Neither Mr. Derr nor Mr. Parsons are members of the advisory committee of the CECP Board, nor did they actively participate in the process of creating or advising the Fund.
Each of the Five Executives have reached out to their own companies, business colleagues and their respective companys employees to encourage donations to the Fund. The Citigroup Foundation has donated $3m to the Fund, which, based on revenues received thus far, is greater than 10% of the Funds revenues. The Fund is expected to collect $35m for the relief effort.
Citigroups independence criteria for its outside directors deem annual contributions to a charitable organization of which a director or an immediate family member of a director serves as a director, trustee or executive officer in excess of the greater of $250,000 or 10% of the charitable organizations annual consolidated gross revenue to be a bar to independence. Based on the fact that the Fund was created at the request of the President of the United States, that none of Citigroups directors who are also directors of CECP (other than Weill) were involved in the creation of the Fund, participate in decision-making regarding the Fund or stand to benefit in any way from the creation of the Fund, the nomination and governance committee determined that the payment by Citigroup to the Fund did not impact the independence of Messrs. Derr and Parsons.
During any twelve month period:
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 in any of the last three calendar years from Citigroup and/or the Citigroup Foundation 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.
The board may determine that a director is independent notwithstanding the existence of an
immaterial relationship or transaction between the director and Citigroup, provided Citigroups proxy statement includes a specific description of such relationship as well as the basis for the boards determination that such relationship does not preclude a determination that the director is independent. Relationships or transactions between a director and Citigroup that comply with the Corporate Governance Guidelines, including but not limited to the sections titled Financial Services, Personal Loans and Investments/Transactions, are deemed to be categorically immaterial and do not require disclosure in the proxy statement (unless such relationship or transaction is required to be disclosed pursuant to Item 404 of SEC Regulation S-K).
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. Citigroup offers several channels by which employees and third parties may report ethical concerns or incidents, including, without limitation, concerns about accounting, internal controls or auditing matters. We provide 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, a dedicated email address, fax line, web-link and a post office box. Individuals 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 to the Ethics Hotline are received by a third party vendor, which reports the calls to Citigroups Ethics Office of 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.
As part of our commitment to aligning employee and stockholder interests, our management committee and all members of the board of directors, approximately 110 persons, have agreed to hold 75% of the Citigroup stock they acquire from Citigroup while they remain directors or members of senior management. The full text of the stock ownership commitment appears in Citigroups Corporate Governance Guidelines which are attached to this proxy statement as Annex A.
In 2005, Citigroup introduced a significantly 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. 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 aligning the interests of management with the interests of stockholders and driving Citigroups success in creating long-term value. With the expansion of the stock ownership commitment, the senior managers of Citigroup, approximately 3,000 employees, are subject to the commitment. The precise number of senior managers fluctuates but generally covers the top 1% of Citigroup employees. As of March 2006, 2,661 employees are considered senior managers.
Exceptions to the stock ownership commitment include gifts to charity, estate planning transactions, transactions with Citigroup in connection with exercising employee stock options or paying withholding taxes under equity compensation programs, and certain other limited circumstances.
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 and certain executive officers at February 28, 2006.
(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. 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.
At February 28, 2006, no director, nominee or executive officer owned
however, all of the directors and executive officers as a group beneficially owned approximately 1.1% of Citigroups common stock.
Of the shares shown on the preceding page, all of which are deemed to be beneficially owned under SEC rules, some portion may not be held directly by the director or executive officer. The following table details the various forms in which directors or executive officers indirectly hold shares. Such indirectly-held shares may be shares:
as shown in the following table:
Proposal 1: Election of Directors
The board of directors has nominated all of the current directors for re-election at the 2006 annual meeting except Sanford Weill who, in accordance with his employment agreement, will be retiring from the board, effective at the annual meeting.
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.
Meetings of the Board of Directors and Committees
The board of directors met 12 times in 2005. During 2005, the audit and risk management committee met 11 times, the personnel and compensation committee met 12 times and the nomination and governance committee met 9 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 2005.
Meetings of Non-Management Directors
Citigroups non-management directors meet in executive session 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, 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 consumer businesses.
The board has determined that each of Dr. Rodin and Messrs. Armstrong, David, Deutch, and Liveris 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, PCX and the Federal Deposit Insurance Corporation guidelines.
The audit and risk management committee charter is attached to this proxy statement as Annex B. A copy of the charter is also available in the Corporate Governance section of Citigroups website: www.citigroup.com.
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 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 and PCx.
The nomination and governance committee charter, as adopted by the board, is attached to this proxy statement as Annex C. A copy of the charter is also available in the Corporate Governance section of Citigroups website: www.citigroup.com.
The personnel and compensation committee, which is responsible for 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 has produced an annual report on executive compensation that is included in this proxy statement. Further, the committee approves equity, broad-based and special compensation plans across Citigroup and reviews employee compensation strategies.
Additionally, the committee regularly reviews Citigroups management resources, succession planning and talent development activities, as well as the performance of senior management.
The committee is also charged, in conjunction with the public affairs committee, 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 and PCX. 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. A copy of the charter, as adopted by the
board, is also available in the Corporate Governance section of Citigroups website: www.citigroup.com.
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 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 and PCX.
The public affairs committee charter, as adopted by the board, is attached to this proxy statement as Annex E. A copy of the charter is also available in the Corporate Governance section of Citigroups website: www.citigroup.com.
The special litigation committee, which was formed to determine whether or not Citigroup should undertake litigation against one or more persons identified in demands submitted by a stockholder regarding certain Citigroup activities, including Citigroups business relationships with Enron Corporation, Dynegy, Inc., Adelphia Communications Corporation, WorldCom, Inc., and Parmalat.
The following table shows the current membership of each committee.
Involvement in Certain Legal Proceedings
Calpine Corporation, in connection with the departure of its Chairman, President and Chief Executive Officer, named Mr. Derr Chairman of the Board and Acting Chief Executive Officer in November 2005. Mr. Derr, who had previously held the position of Lead Director of Calpine, was Acting Chief Executive Officer for approximately two weeks. Mr. Derr continues to serve as Calpines Chairman of the Board. On December 20, 2005, Calpine Corporation filed for federal bankruptcy protection under Chapter 11.
There are no legal proceedings to which any director, officer or principal shareholder, or any affiliate thereof, is a party that would be material and adverse to Citigroup.
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 Mr. 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 valued at $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 a portion of their deferred stock awards and cash retainer 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 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 2005.
Citigroup reimburses its board members for expenses incurred in attending board and committee meetings or performing other services for Citigroup in their capacities as directors. Such expenses include food, lodging and transportation.
Citigroup offers life insurance to its directors on the same terms offered to its employees. Ms. Jordan participates in the life insurance program and pays $108 dollars a year for approximately $75,000 of coverage. No other directors participate in this program.
The following table provides information on 2005 compensation for non-employee directors.
Non-Employee Director Compensation Chart
(A) The following directors elected to receive all or a portion of their 2005 retainer and deferred stock award in stock options: Mr. Armstrong (25%); Mr. David (100%); Mr. Liveris (50%); and Mr. Parsons (100%). The number of options they received was: Mr. Armstrong 4,736; Mr. David 18,947, Mr. Liveris 2,318, and Mr. Parsons 18,947. 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.
(B) 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 2005, 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 2005 was $2,310,000.
(C) Messrs. Kleinfeld and Liveris were elected to the board in July and September respectively, and their compensation was prorated for the portion of the year that each served as a director.
The following chart shows the amount of dividend equivalents and interest paid to the non-employee directors in 2005 with respect to their shares of Citigroup common stock held in their deferred stock accounts.
(A) Dividend equivalents are paid quarterly, in the same amount and at the same time as dividends are paid to stockholders. Interest accrues on the amount of the dividend equivalent from the payment date until the end of the quarter, at which time the dividend equivalent is either distributed to the director in cash or reinvested in additional shares of deferred stock. Directors who have served on the board for longer periods of time have accumulated more shares in their deferred stock accounts than directors with shorter tenure and as a result receive higher dividend equivalent payments. The number of shares owned by each director is reported on page 15.
(B) Mr. Kleinfeld and Mr. Liveris were elected to the board in 2005.
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 17, 2006, 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 2005 the Committee had eleven meetings and seven educational sessions. Eleven sub-committee meetings were held during 2005. During the first three fiscal quarters of 2005, 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 three meetings. Following Citigroups disposition of the Life and Annuities and Asset Management businesses, the subcommittees were restructured into two committees, the Corporate Audit and Risk Management Subcommittee and the Consumer Audit and Risk Management Subcommittee. 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, 2005 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 2005, 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 2006, 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, at a meeting held in January 2006, 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, 2005, for filing with the SEC.
THE AUDIT AND RISK MANAGEMENT COMMITTEE:
C. Michael Armstrong (Chair)
John M. Deutch
Andrew N. Liveris
Dated: February 17, 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.
THE PERSONNEL AND COMPENSATION COMMITTEE:
Richard D. Parsons (Chair)
Alain J.P. Belda
Kenneth T. Derr
Ann D. Jordan
Dated: February 28, 2006
The tables on pages 39 to 45 show Citigroups compensation for the Chief Executive Officer and our four other most highly compensated executive officers (the covered executives), and Mr. Willumstad, who served as President and Chief Operating Officer until August 2005, including salaries and bonuses paid during the last three years and 2005 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 2003, 2004 and 2005. In 2004, as a result of a number of setbacks that impacted Citigroup, the personnel and compensation committee, at the request of the chief executive officer and the chief operating officer (with respect to themselves and those executives in charge of Citigroups businesses) and the Chairman (with respect to himself), reduced the 2004 compensation of certain of the covered executives from what it would otherwise have been. Of the covered executives, for Messrs. Prince, Weill and Willumstad, the reduction was 15%; for Mr. Druskin and Ms. Krawcheck, the reduction was 10%.
Summary Compensation Table
An asterisk (*) indicates that the total amount of perquisites or personal benefits paid to an executive officer during the referenced year (2004 or 2003) 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. For 2005, all perquisites have been reported, whether or not required under SEC rules.
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(A) Citigroup provided certain perquisites and personal benefits to the covered executives during 2005, which are described below. These perquisites and personal benefits are appropriately valued and included in the covered executives compensation and reported in the Summary Compensation Table under Other Annual Compensation or All Other Compensation as well as the 2005 Personal Benefits Chart below.
Two of the covered executives, Mr. Weill and Mr. Prince, 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. To the extent any covered executive, and their spouses when traveling with a covered executive, used corporate aircraft, a corporate-owned vehicle or any other corporate-provided transportation for personal purposes, the usage was treated as a perquisite and reported in the Summary Compensation Table. 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 operating costs of the aircraft. For corporate provided ground transportation, the aggregate incremental cost to Citigroup was determined to be the value of such transportation.
The following table lists each personal benefit and the amount received by each covered executive during 2005.
2005 Personal Benefits Chart
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(B) Certain restricted stock and deferred stock awards are issued under CAP. For 2005 all of the covered executives received two awards of either restricted or deferred stock under CAP, depending on the covered executives age and service. The two awards consist of 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 compensation. Supplemental CAP awards are not discounted and represent 15% of the covered executives total incentive compensation. 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 awards exceed a certain threshold (generally $20,000 for U.S. employees and approximately $40,000 to $45,000 for non-U.S. employees). CAP awards vest 25% per year over a four year period, and are cancelled upon a voluntary termination of employment or a termination of employment for gross misconduct unless the recipient meets certain age and service requirements described below. Following the vesting of each portion of a CAP award, the freely transferable shares, subject only to the stock ownership commitment described above, are delivered to the CAP participants. With respect to awards of restricted stock, from the date of award, the recipient can direct the vote and receives dividends on the underlying shares. 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 are delivered.
The following chart shows the amount of dividends and dividend equivalents paid to each of the covered executives with respect to their holdings of restricted and/or deferred stock during 2005.
Employees who receive CAP awards may elect to receive all or a portion of the award in non-qualified stock options, in 25% increments, rather than restricted or deferred stock. 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 options 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 his or her incentive award in January 2006.
For awards granted under CAP for years prior to 2004, the vesting date is three years after the award. If the recipient is still employed by Citigroup at the end of three years, the award becomes fully vested and the stock becomes freely transferable, subject only to the stock ownership commitment described above.
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On July 15, 2003, Mr. Prince received a retention award of restricted stock which was issued under the Citigroup 1999 stock incentive plan. The award is not discounted and provides for 100% vesting on the fifth anniversary of the award, provided Mr. Prince is still employed by Citigroup on that date. Mr. Willumstad also received a retention award in July 2003. The vesting of that award is discussed in the section below entitled Separation Agreement.
With respect to the retention awards, until the award vests, a recipient may not transfer the shares. After the award vests, the shares become freely transferable, subject only 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 or dividend equivalents. The 2003 retention awards to Mr. Prince and Mr. Willumstad were each valued at $15,000,039. These awards are included in the amounts set forth in the summary compensation table above under Restricted Stock Awards.
In accordance with the stock option program guidelines, in lieu of options awarded to them for 2003, each of Mr. Prince and Mr. 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 covered executives. From the date of award, the recipient receives dividend equivalents but does not have voting rights with respect to the shares. For 2003, Mr. Prince received an award valued at $828,167 and Mr. Druskin received an award valued at $414,083. 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, such awards will continue to vest on schedule provided that 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.
As of December 31, 2005 (excluding awards that vested in January and February 2006, which appear in the Beneficial Ownership Table above, but including awards made in January 2006, which appear in the Summary Compensation Table above), 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 30, 2005 was $48.53 per share.
(C) Mr. Willumstad, former President and Chief Operating Officer and former member of the board of directors of Citigroup, retired from Citigroup, effective August 31, 2005. For information regarding compensation received by Mr. Willumstad under his separation agreement see the section entitled Separation Agreement below.
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. Upon 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 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.
A reload option may not be exercised by the reload exercise method unless the market price on the date of exercise is at least 20% greater than the option exercise price.
Stock Options Granted Table
The following table shows 2005 stock option grants received by two of the covered executives. Neither of the options were discretionary awards, rather they were reload options whose issuance resulted from rights that were granted to the option holder as part of an earlier option grant and were made under Citigroups equity compensation plans, including the Citigroup 1999 stock incentive 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.
Citigroup no longer grants reload options except to the extent required by the terms of previously granted options.
The table describes options as either initial or reload. Unless otherwise stated:
2005 Option Grants
Notes to 2005 Option Grants Table
(A) The total options outstanding at the end of 2005 for each covered executive is shown as Number of Shares Underlying Unexercised Options at 2005 Year-End in the table 2005 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 calculates the Grant Date Present Values in its proxy statement using the binomial option pricing model. The following assumptions were used in employing the model.
Option Exercises Table
The following table shows the aggregate number of shares underlying options exercised in 2005 and the value at year-end of outstanding options, whether or not exercisable.
2005 Aggregated Option Exercises and Year-End Option Values