Citi/Jane Fraser: enumeration of remuneration softens indignation

Does Jane Fraser, chief executive of Citigroup, deserve a pay rise? In the context of a tricky 2022 for US banks, the group bucked the trend and bumped up Fraser’s remuneration by 9 per cent to $24.5mn. Peers at Goldman Sachs, Morgan Stanley, Bank of America and JPMorgan had their pay slashed, trimmed or frozen. 

That is hard to square with Citi’s results over the past year. Net income was down 32 per cent. Only Goldman Sachs fared worse, with a near-halving of 2022 income. A painful humbling in retail banking left chief executive David Solomon with a red face and a pay cut of almost 30 per cent.

Citi’s shares have been trailing the pack. They plunged 25 per cent in 2022. The lowly valuation of 0.6 times tangible book value chimes with a return on tangible equity of only 8.9 per cent. Bank of America’s stock did as poorly. Long-time boss Brian Moynihan had 6 per cent shaved off his pay package. 

Fraser is still being paid less than peers – $10mn less than Jamie Dimon at all-conquering JPMorgan. And her pay rise may not be as big as it looks. 2022 is Fraser’s first full year – the 2021 figure reflects 10 months of work. 

There is a broader question. How much of a chief executive’s pay should reflect that year’s financial results?

In a filing, Citi justifies Fraser’s package with reference to a whole host of non-financial achievements, including changing the organisational chart, hiring bankers and strengthening risk controls. 

It is easy to make fun of such metrics because it is impossible to know how much value they will create, if any at all. But, at least conceptually, it is true that much of what we want bosses to do will bear fruit only over the long term. 

Perhaps the best idea, then, is to make pay contingent on longer-term performance. Citi has attempted to do this. It has cut Fraser’s cash remuneration by $2.7m and hiked up share awards. That should take some of the sting out of this pay bump for Citi shareholders.