(Bloomberg News) Citigroup Inc. investors rejected the bank's executive pay plan, a first among the six largest U.S. lenders, amid criticism it lets Chief Executive Officer Vikram Pandit collect millions of dollars in rewards too easily.

About 45 percent of the votes favored the plan, which Citigroup had argued would help attract and retain top talent, according to a preliminary tally at the New York-based firm's annual meeting in Dallas today. While the vote isn't binding, outgoing Chairman Richard Parsons said changes will be made.

"That's a serious matter," Parsons said. The board will seek a more quantitative, formula-based method for setting top executives' pay, he said. "We're going to have some more conversation with our shareholders, make sure we understand their concerns and then fix it."

The rejection is a rarity for companies in the U.S., which temporarily imposed pay curbs on financial firms as part of the industry's $700 billion bailout in 2008. While new rules require "say-on-pay" votes, only 41 firms among the Russell 3000 Index failed last year to win a majority for executive pay plans, according to Ted Allen, a spokesman for ISS Proxy Advisory Services. Just two have been rejected this year, neither of them at banks, Allen said.

Capital Plan Rejected


The Citigroup vote followed last month's rejection by U.S. regulators of Pandit's capital plan that included rewards for shareholders -- possibly including a higher dividend -- and the company's disclosure that Pandit received compensation and retention packages that could be worth about $55 million.

The board awarded Pandit, 55, about $15 million in total compensation for 2011, a year in which the bank's shares slumped 44 percent. That included a $5 million bonus and a separate, multiyear retention package that may pay about $40 million.

"This is a very historic action on the part of shareholders, and I think it's a rebuke of what has gone on in terms of the leadership at Citigroup," said Eleanor Bloxham, chief executive officer of the Value Alliance Co., a board advisory firm in Westerville, Ohio.

Citigroup accepted $45 billion from U.S. taxpayers to help it survive the financial crisis, and has since repaid the entire sum. Banks that took money from the Treasury Department's Troubled Asset Relief Program in 2008 and 2009 were required to put a say-on-pay vote before shareholders, according to Bloxham. Such votes were required for all companies in the Dodd-Frank Act passed in 2010, she said.

KeyCorp's CEO

The only large bank to have a compensation plan rejected by shareholders was Cleveland-based KeyCorp in 2010, she said. According to KeyCorp's 2011 shareholder letter, the company subsequently reduced pay for then-CEO Henry L. Meyer III to $4.5 million from $5 million.

ISS and its competitor, Glass Lewis & Co., faulted Pandit's payouts and recommended that investors reject the bank's executive compensation plan for 2011. Pandit got more than Stuart Gulliver, CEO of HSBC Holdings Plc, the London-based lender that made more money than Citigroup in 2011 and posted a smaller share drop.

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