The shareholders of Citigroup voted to reject the generous pay package of the CEO Vikram Pandit this week, setting up a potential showdown that could ripple throughout the corporate world. The "advisory" vote — which is required by the Dodd-Frank Act, but is not binding — now puts the company's directors in awkward position. The can go along with it and ask Pandit to "give back" some of the $34 million it paid him last year, or can they can ignore it and defy the people they theoretically work for. Neither option is attractive, but how it plays out could change the very nature of the shareholder-corporation relationship. It's the first time a major Wall Street firm has had to face such a vote and it probably won't be the last one to lose it.
Though Citigroup has performed reasonably well in the last year, there is still a sense among average investors that executive pay is far out of whack. Pandit's pay in particular is not tied tightly to performance, as some CEO packages are, and much of his income from Citi is actually the payments on an $800 million buyout of the hedge fund he ran before joining the company. (They would owe him that even if he got fired tomorrow.) However, it's now clear from this shareholder move that it isn't just Occupy Wall Streeters who are annoyed with the outrageous sums that top executives take home. Now they're actively trying to do something about it.