The Director Compensation Project: Citigroup

This post is part of an ongoing series that examines the way stock exchange independence rules influence director compensation. We are including companies from 2007’s Fortune 100 and using information found in their 2008 proxy statements. In addition to state standards and the requirements of SOX, the stock exchanges each have their own standards for independence. While substantially the same, there are some minor differences between NYSE and NASDAQ rules that are worth noting.

Under NYSE Rule 303A.01, all listed companies must have a majority of independent directors sitting on their boards. Directors are not independent if they received over $100,000 in direct compensation, other than director’s fees, in any one year period over the last three years pursuant to Rule 303A.02(b)(ii).  The NYSE recently increased this amount to $120,000.  This is a looser restriction than the equivalent NASDAQ Rule, 4200(a)(15), which includes all compensation. Rule 303A.06 requires that, in addition to the general independence standards, audit committee members must comport with the requirements of Exchange Act Rule 10A-3 (C.F.R. §240.10A-3), also known as SOX 301.

One can see some of the effects of these rules when looking at the director compensation table from Citigroup’s (C-NYSE) 2008 proxy statement. According to the proxy statement, the company paid the directors the following amounts:

Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)(c)	All Other Compensation ($)	Total ($)
C. Michael Armstrong	110,000	112,500	17,134	2,726	242,022
Alain J.P. Belda	0	130,625	39,556	0	170,181
George David	0	35,000	81,885	0	116,885
Kenneth T. Derr	0	241,667	0	0	241,667
John M. Deutch	110,000	150,000	0	0	260,000
Roberto Hernández Ramirez(a)	0	0	0	2,610,000	2,610,000
Ann Dibble Jordan(b)	22,500	43,750	0	0	66,250
Klaus Kleinfeld(b)	56,250	175,000	0	0	231,250
Andrew N. Liveris	37,500	81,250	44,724	0	163,474
Dudley C. Mecum(b)	18,750	43,750	0	0	62,500
Anne M. Mulcahy	75,000	165,000	0	0	240,000
Richard D. Parsons	0	158,750	41,844	0	200,594
Judith Rodin	0	130,625	39,556	0	170,181
Robert L. Ryan(b)	37,500	6,250	0	0	43,750
Franklin A. Thomas	75,000	156,250	0	0	231,250
(a)Aggregate amount of travel and security expenses for Mr. Hernández, his immediate family, office, secretarial and related services. (b)These directors served, and were compensated, for only a portion of the year.

Director Compensation. Citigroup’s board met thirteen times last year. All the directors attended at least 75% of the meetings and committees of the board of which he or she was a member in 2007. Only two of the eighteen non-employee directors received more than $100,000 in director’s fees paid in cash. Excluding the directors who either left or joined mid-year, non-employee directors as a group averaged $309,750 in total compensation for their services. Further, excluding Mr. Hernández, whose only compensation was for travel and security expenses, non-employee directors as a group averaged $135,750 in total compensation. Over 30% of their total compensation came in the form of stock awards, which are considered director’s fees for purposes of complying with exchange rules.

Director Tenure. Approximately 55% of the non-employee directors standing for reelection have served on the board for ten years or more. Franklin Thomas has the longest tenure by far at thirty-seven years. Several directors also sit on other boards. Robert Ryan, a director since 2007, sits on the boards of Black & Decker, General Mills, Hewlett-Packard, and UnitedHealth Group.

CEO Compensation. Vikram Pandit, who became CEO effective December 11, 2007, received $573,813 in total compensation for 2007. Mr. Pandit’s total compensation included $250,000 in the form of cash. Charles Prince, the former CEO, received $15,105,376 in total compensation for 2007, $ 11,400,958 in cash. Of Mr. Prince’s cash compensation, $ 10,400,958 was paid pursuant to a separation agreement. Slightly more than 1% of Mr. Prince’s compensation came in the form of "other compensation." Mr. Pandit received no compensation in the form of “other compensation.”

Comments

[Confused]

First, I am not sure it is clear than the independence standards are effecting director compensation. The data and discussion do not show a clear link. While it may be that the move to requiring a majority of independent directors has effected the levels of director compensation (doubtful), I am very skeptical that it is the standards themselves.

Second, I am not sure why you believe the NYSE standard is looser than the Nasdaq standard. The assertion that Nasdaq includes all compensation is incorrect. Like NYSE, Nasdaq clearly excludes director compensation from the $120,000 cap (see, 4200(a)(15)(B)(i). Also, Nasdaq company audit committee members are subject to 10A-3 so I am not sure why that reference is thrown in.

Finally, the exclusion of director compensation from the $120,000 cap covers the cash, equity and "other compensation" paid as part of Board service. It would seem to follow then, that the standards are not effecting director compensation.