"Charles O. Prince resigned as chairman and chief executive officer of Citigroup last November, after accepting responsibility for the bank’s $5.9 billion write-down related to its exposure to risky mortgages that led to a 57 percent drop in its third-quarter profits. “Given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as Chief Executive Officer is to step down,” he said, in a Nov. 5, 2007, press release announcing his resignation.

Yet, when he walked away, he received a compensation package that was larger than what he received in 2006. His 2007 compensation included $1 million in salary, $1.5 million in annual perquisites for five years and a discretionary bonus of $10.4 million. Although Prince, who spent his entire career at Citigroup, had no employment contract, the board let him retain more than $28 million in unvested stock and options that became vested immediately. Prince can exercise the options over the next two years, in keeping with his separation agreement. He also received pension and retirements benefits with a present value of $1.8 million.

Shortly after Prince departed, Citigroup posted a loss of $9.83 billion for the fourth quarter of 2007, the biggest loss in its 196-year history, after rising defaults forced the company to write down the value of its mortgage portfolio. The nation’s largest bank cut its dividend for the first time and was forced to seek a $12.5 billion infusion of cash from foreign investors.

In January, the new CEO, Vikram Pandit, announced the bank would lay off 4,200 employees globally. By March, Citigroup’s stock had plummeted to its lowest level since 1998, dropping to around $22, amid concerns the bank might have to seek more capital from foreign investors again.

Under pressure from the AFL-CIO over its risk management practices, Citigroup said that C. Michael Armstrong, would step down as chairman of its audit and risk management committee this summer. Armstrong, who has headed the committee since 2004, oversaw more than $22 billion in write-offs from mortgage-related investments by Citigroup. The chairmen of other board committees also will step down as part of a new rotation policy, Citigroup said.

The Corporate Library, a corporate governance research firm, gave Citigroup a D rating, citing concerns about Prince’s compensation package despite the company’s poor performance. Even so, Prince maintained that "Citigroup has worked hard to align management’s interests with the interests of shareholders."

The company’s 2008 proxy reveals that may be far from the case. Citigroup’s Personnel and Compensation Committee uses the Independent Compensation Committee Adviser LLC (ICCA) to review the compensation of its top executives and ensure that it is competitive with the pay packages of a group of peer companies. But the committee cited the mortgage meltdown as reason not to benchmark its 2007 executive compensation to that of peer companies, thus flying blind in making compensation decisions.

Citigroup’s proxy notes that "ICCA concluded that in light of the extraordinary financial upheavals that occurred at the end of 2007, there was limited meaningful guidance regarding contemporary compensation practices, as compensation data from 2006 and 2007 compensation surveys became an unreliable predictor of actual competitor compensation practices for 2007."

Prince became CEO of Citigroup on Oct. 1, 2003, and resigned Nov. 5, 2007. During his tenure, Citigroup’s total return was –2.5 percent a year, compared to a 12 percent a year return for the Standard & Poor’s (S&P's) 500 index during the same time.

The company’s stock closed at $29.44 at year-end, and shareholders lost 43.27 percent in 2007, compared with a –25.68 percent return for peers, and 5.15 percent return for the benchmark S&P 500. The company’s performance also lagged that of peers and the benchmark S&P 500 over the three-year and five-year periods ending Dec. 31, 2007."