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We Make America Happen


Gerald W. McEnte e
William Luc y June 29, 2009
Edward J. Kelle r
Kathy J . Sackma n
Richard D. Parsons
Chairman of the Board
c/o the Corporate Secretary
Citigroup Inc .
399 Park Avenue
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 that
hold approximately 3 percent of Citigroup's outstanding shares . The AFSCME
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 excessive
exposure to credit, market, liquidity and operational risk . I write today, on behalf of
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 to

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 has
decided to raise base salaries for bankers and traders as much as 50 percent . Although
these 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

284-09 TEL (202) 775-8142 FAX (202) 785-4606 1625 L Street, NW,Washington, DC 20036-568 7
June 29, 200 9
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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 l
crisis . We welcome a greater focus on the creation of long-term value for shareholders i n
constructing 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 fo r
them 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 appropriate
incentives are put in place for the creation of value . Instead of raising salaries, traders
and other highly compensated employees should receive a cash bonus to be held i n
escrow and paid out over three years based on sustained corporate performance . And if
Citibank's future is to be a larger retail bank, and a large part of the rebuilding focus is o n
recreating Citibank as that bank, then investing in traditional bankers may be wiser tha n
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 being
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 to
the highest corporate governance standards, including for compensation decisions. Along
with the current pay raises, we believe that the recent reelection of Personnel an d
Compensation Committee member C . Michael Armstrong based on uninstructed broker
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 billion
votes for his election and 1 .1 billion votes against his election . However, 1 .7 billion of
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 broker
votes 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 .
June 29, 2009
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We would appreciate a timely response informing us of the changes you intend to mak e
to your compensation programs and what actions the Board intends to take with an y
director who does not receive the majority of the instructed shareholder vote . If you have
any questions, please feel free to contact Charles Jurgonis, Plan Secretary, at (202) 429-

Sincerely ,


cc: Alain J.P . Beld a

Chairman, Personnel and Compensation Committe e

Shelley J. Dropkin
General Counsel, Corporate Governanc e

The Honorable Timothy F . Geithner

United States Secretary of the Treasury

Kenneth R. Feinberg
Special Master on Executive Pay

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