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9
AFSCME
We Make America Happen
EMPLOYEES PENSION PLA
N
June 29, 200
9
VIA OVERNIGHT MAIL AND FACSIMIL
E
Richard D
. Parson
s
Chairman of the Boar
d
c/o the Corporate Secretar
y
Citigroup Inc
.
399 Park Avenu
e
New York, NY 1004
3
Dear Mr. Parsons
:
The American Federation of State, County and Municipal Employees ("AFSCME"
)
is the nation's largest public service employees union. We represent more than 1
.
6
million members who participate in public pension systems across the country tha
t
hold approximately 3 percent of Citigroup's outstanding shares
. The AFSCM
E
Employees Pension Plan (the "Plan") is a long-term shareholder that manages $85
0
million in assets for its participants. We have a history of engagement with Citigroup
.
In 2007 and 2008, the Plan filed a shareholder proposal seeking an advisory vote t
o
ratify the compensation of Citigroup's named executive officers
. In 2008 we urge
d
the breakup of Citigroup into two manageable groups
. This year we urge
d
shareholders to vote against the reelection of certain members of Citigroup's Audi
t
and Risk Management Committee for failing to protect shareholders from excessiv
e
exposure to credit, market, liquidity and operational risk
. I write today, on behalf o
f
the Plan, to urge that Citigroup reconsider recent compensation decisions that wil
l
weaken the link between top executive pay and company performance
.
The Plan believes that tying a substantial portion of executive compensation t
o
company performance can help foster the creation of long-term value for shareholder
s
and avoid excessive executive pay
. As a result, the Plan has long advocated fo
r
policies such as limitations on severance benefits, the use of performance-base
d
restricted stock, the creation of a "bonus bank" system for annual incentiv
e
compensation and a ban on tax gross-ups
.
Accordingly, we were dismayed to learn in recent press reports that Citigroup ha
s
decided to raise base salaries for bankers and traders as much as 50 percent
. Althoug
hthese raises are being characterized by a Citigroup spokesman as "intended to adjus
t
the balance between salaries and bonuses," there is no getting around the fact that th
e
affected executives will be receiving a great deal more pay that has no tie t
o
performance
.
American Federation of State, County and Municipal Employees,AFL-CI
O
TEL
(202)
775-8142
FAX
(202)
785-4606
1625 L Street, NW,Washington,
DC
20036-568
7
Committe
e
Gerald W
.
McEnte
e
William Luc
yEdward J. Kelle
rKathy J
.
Sackma
n
Marianne Stege
r
2,
284-09
Citigrou
p
June 29, 200
9
Page 2 of
3
The Plan agrees that de-emphasizing annual incentive awards is appropriate, given th
e
role that short-termism and misplaced incentives played in creating our current financia
lcrisis
. We welcome a greater focus on the creation of long-term value for shareholders i
nconstructing executive compensation schemes
. We do not, however, view enormou
s
increases in fixed pay as contributing to that sort of realignment
.
One of our main concerns is that the bulk of pay increases will apparently be focused on
the traders and investment bankers, so that these raises will create a win-win situation forthem by guaranteeing a very high salary and providing potential high upside by awardin
g
employees one stock option for every share of unvested restricted stock held, so that ther
e
will likely be a huge pay day in the future. We believe it is critical that appropriat
e
incentives are put in place for the creation of value
. Instead of raising salaries, trader
s
and other highly compensated employees should receive a cash bonus to be held i
nescrow and paid out over three years based on sustained corporate performance
. And i
f
Citibank's future is to be a larger retail bank, and a large part of the rebuilding focus is o
nrecreating Citibank as that bank, then investing in traditional bankers may be wiser than
spending so much money to attract traders
.
It seems likely that Citigroup's proposed shift in compensation approach is in part
a
response to the compensation restrictions imposed by the U
.S
. Treasury Department'
s
Troubled Asset Relief Plan ("TARP"), in which Citigroup has participated. Despite bein
g
bailed out by taxpayer money last year, it appears Citigroup may not have learned th
e
lesson that compensation that properly balances incentive and risk remains a hot butto
n
issue
. The U
.S
. Treasury will soon become Citigroup's largest shareholder following th
e
conversion of Citigroup's preferred securities to common stock
.
We believe that companies receiving taxpayer assistance under TARP should be held t
o
the highest corporate governance standards, including for compensation decisions
. Alon
g
with the current pay raises, we believe that the recent reelection of Personnel an
d
Compensation Committee member C
. Michael Armstrong based on uninstructed broke
r
votes calls into question Citigroup's willingness to meet these standards. According t
o
Citigroup's most recent Form 10-Q, Mr. Armstrong received approximately 2.7 billio
n
votes for his election and 1
.1 billion votes against his election
. However, 1
.7 billion o
f
the total votes were cast under NYSE Rule 452 that permits brokers to vote in directo
r
elections
. In our opinion, the election of Mr
. Armstrong based on uninstructed broke
rvotes calls into question the legitimacy of his continued Board service and the integrity o
f
the Personnel and Compensation Committee
. His resignation would show Citigroup'
s
commitment to best practice, and we urge your support in asking for his resignation
.
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