This excerpt taken from the C DEF 14A filed Mar 14, 2006.
Recoup Unearned Management Bonuses Yes on 12
This proposal is unnecessary, and potentially counter-productive, because Citigroups Corporate Governance Guidelines provide that Citigroup will take all appropriate action to recoup bonus or incentive compensation from an executive officer whose wrongful actions benefited him or her, and led to a restatement of earnings. The Guidelines, which are on our website, provide, in pertinent part, that The Board will, to the full extent permitted by governing law, in all appropriate cases, require reimbursement of any bonus or incentive compensation awarded to an executive officer or effect the cancellation of unvested restricted or deferred stock awards previously granted to the executive officer if: a) the amount of the bonus or incentive compensation was calculated based upon the achievement of certain financial results that were subsequently the subject of a restatement, b) the executive engaged in intentional misconduct that caused or partially caused the need for the restatement, and c) the amount of the bonus or incentive compensation that would have been awarded to the executive had the financial results been properly reported would have been lower than the amount actually awarded.
In addition, other Citigroup policies and applicable legal and regulatory standards provide additional protections against the kind of financial manipulation described in the proposal.
First, Citigroups equity programs provide that if an employee engages in conduct that breaches his or her duty of loyalty, or is materially injurious to Citigroup, any shares held by the employee that are subject to restriction can be canceled. In addition, if a vesting of shares or vesting and/or exercisability of an option extends past the termination of an employees employment, they can be canceled if the former employee engages in misconduct, including any of the conduct described in the proposal.
Second, Citigroups compensation program creates an incentive for our executive officers to take a long-term view of creating value for the shareholders rather than any incentive for an executive officer to manipulate Citigroups financial statements for his or her own short term gain. Citigroup has long believed that equity compensation programs should ensure that the interests of our directors, executive officers and other employees are aligned with those of stockholders and accomplish this goal in part by making annual awards of restricted or deferred stock to senior management, this year representing 35 - 40% of their total annual incentive. And our senior executives are required by our stock ownership commitment to hold 75% of the shares of common stock they own when they become subject to the commitment and 75% of any additional shares they receive from Citigroup. This
provides a great incentive for our senior management to ensure Citigroups fiscal health over the long term and no incentive to attempt to manipulate earnings for short-term gain. Further supporting a long-term focus by our senior management are the vesting period, usually 3 years, for their awards of restricted and deferred stock and the 2-year holding period imposed on shares obtained through the exercise of stock options.
Third, the Sarbanes-Oxley Act provides that in the case of accounting restatements due to an issuers material non-compliance, as a result of misconduct, with any financial reporting requirement under the securities laws, chief executive officers and chief financial officers can be required to reimburse their companies for any bonus or other incentive-based or equity-based compensation and profits from the sale of the companys securities during the 12-month period following initial publication of the financial statements that had to be restated.
In addition, the Sarbanes-Oxley Act requires both management and the independent registered public accounting firm to annually report on a companys internal control over financial reporting. These reports appear in Citigroups 2005 Annual Report. In preparing its financial statements, Citigroup undergoes a very strict diligence process in order to confirm that the
financial statements are accurate and to permit the Chief Executive Officer and Chief Financial Officer to certify as to the accuracy of the financial statements.
The Proposal would require the board to recoup all affected bonuses and awards to senior executives without regard to the specific facts and circumstances, including whether a senior executive was in any way responsible for the manipulation giving rise to the restatement, or the amounts involved. This could be quite counter-productive, unfair and wasteful of company resources. If a senior executive purposely injured Citigroup, in addition to dismissing that person, the Board could enforce the policies described above, authorize legal action for breach of fiduciary duty or take such other action to enforce the executives obligations to Citigroup as may fit the facts surrounding the particular case. The Board is in the best position to choose the appropriate remedy in the circumstances and to decide what is in Citigroups best interests. The Board believes that in carrying out its fiduciary duty to stockholders and, in order to ensure that executives are not penalized unjustly, it must retain the discretion and flexibility to exercise its judgment taking into account all relevant information.
Because Citigroup has adopted a policy empowering the board to recoup compensation paid to executives who have manipulated Citigroups financial statements to increase their own compensation, it has a number of other remedies it can use in such a situation, the structure of its compensation programs do not provide incentives for manipulation and it has a number of processes in place to prevent this type of manipulation from occurring, the Proposal is unnecessary and the board recommends that you vote against this Proposal 12.