Who is soliciting my vote?

The board of directors of Citi is soliciting your vote at the 2009 annual meeting of Citi’s stockholders.

 

Where and when will the annual meeting take place?

The meeting is scheduled to begin at 9am on April 21, 2009 at the Hilton New York at 1335 Avenue of the Americas in New York City. The entrance to the Hilton is on Avenue of the Americas (6th Ave.) between West 53rd and West 54th Streets.

 

What will I be voting on?

An agenda will be distributed at the meeting.

 

How many votes do I have?

You will have one vote for every share of Citi common stock you owned on February 27, 2009 (the record date).

 

How many votes can be cast by all stockholders?

5,512,970,301, consisting of one vote for each of Citi’s shares of common stock that were outstanding on the record date. There is no cumulative voting.

 

How many votes must be present to hold the meeting?

A majority of the votes that can be cast, or 2,756,485,152. We urge you to vote by proxy even if you plan to attend the annual meeting, so that we will know as soon as possible that enough votes will be present for us to hold the meeting.

 

Does any single stockholder control as much as 5% of any class of Citi’s voting stock?

Yes, according to a Schedule 13 G Information Statement filed by State Street Bank and Trust Company on February 17, 2009, State Street may be deemed to beneficially own 6.2% of Citi’s common stock. State Street, the custodian for Citi’s 401(k) Plan, disclaimed beneficial ownership of all such shares in the Information Statement.

 

In 2008, Citi issued to the U.S. Treasury warrants to purchase approximately 5,810,143,249 shares of common stock, of which 360,075,154 warrants to purchase shares of common stock are exercisable within 60 days. The exercise prices for the warrants are $10.61 and $17.85. The warrants exercisable within 60 days represent approximately 6.2% of Citi’s voting stock. However, none of the warrants have been exercised and the exercise prices are above Citi’s closing price on March 6 of $1.03. See Citi’s Annual Report on Form 10-K filed on February 27, 2009 for additional information.

 

For further information, see “Stock Ownership—Owners of More than 5% of Our Common Stock” in this proxy statement.

 

How do I vote?

You can vote either in person at the annual meeting or by proxy whether or not you attend the annual meeting.

 

To vote by proxy, you must either

 

 

To ensure that your vote is counted, please remember to submit your vote by April 20, 2009.

 

Citi employees who participate in equity programs may receive their proxy cards separately.

 

If you want to vote in person at the annual meeting, and you hold your Citi stock through a securities broker (that is, in street name), you must obtain a proxy from your broker and bring that proxy to the meeting.

 

Can I change my vote?

Yes. Just send in a new proxy card with a later date, or cast a new vote by telephone or Internet, or send a written notice of revocation to Citi’s Corporate Secretary at the address on the cover of this proxy statement. If you attend the annual meeting and want to vote in person, you can request that your previously submitted proxy not be used.

 

What if I don’t vote for some of the matters listed on my proxy card?

If you return a signed proxy card without indicating your vote, your shares will be voted, in accordance with the board’s recommendation, for the nominees listed on the card, for kpmg as independent registered public accounting firm for 2009, for the Citigroup 2009 Stock Incentive Plan, for Citi’s 2008 Executive Compensation and against the other proposals.

 

How are my votes counted?

You may vote for or against each director nominee, or abstain from voting on a director nominee. Each nominee for director will be elected if the votes for the director exceed the votes against the director. Abstentions will not be counted either for or against the director but will be counted for purposes of establishing a quorum.

 

You may vote for or against the ratification of kpmg, or abstain from voting on this proposal. If you abstain from voting on the ratification of kpmg, your shares will be counted as present for purposes of establishing a quorum, and the abstention will have the same effect as a vote against this proposal.

 

You may vote for or against Citi’s 2008 Executive Compensation, or abstain from voting on this proposal. If you abstain from voting on Citi’s 2008 Executive Compensation, your shares will be counted as present for purposes of establishing a quorum, and the abstention will have the same effect as a vote against this proposal.

 

You may vote for or against or you may abstain from voting on the other proposals. If you abstain from voting on the Citigroup 2009 Stock Incentive Plan or any stockholder proposal, your shares will be counted as present for purposes of establishing a quorum, and the abstention will have the same effect as a vote against that proposal.

 

How many votes are required to elect directors and to adopt the other proposals?

Citi has adopted a by-law providing a majority vote standard for director elections. The by-law amendment provides that if a nominee receives, in an uncontested election, a number of votes cast against his or her election that is greater than the number of votes cast for the election of the director, such director shall offer to resign from his or her position as a director. Unless the board decides to reject the offer or to postpone the effective date of the offer, the resignation shall become effective 60 days after the date of the election.

 

The ratification of kpmg’s appointment, the Citigroup 2009 Stock Incentive Plan, Citi’s 2008 Executive Compensation and the stockholder proposals each require the affirmative vote of a majority of the shares of common stock represented at the annual meeting and entitled to vote thereon in order to be approved.

 

Is my vote confidential?

In 2006, the board adopted a confidential voting policy as a part of its Corporate Governance Guidelines. Under the policy, all proxies, ballots, and vote tabulations are kept confidential for registered stockholders who request confidential treatment. If you are a registered stockholder and would like your vote kept confidential, please check the appropriate box on the proxy card or follow the instructions when submitting your vote by telephone or by the Internet. If you hold your shares in “street name” or through an employee benefit plan, your vote already receives confidential treatment and you do not need to request confidential treatment in order to maintain the confidentiality of your vote.

 

The confidential voting policy will not apply in the event of a proxy contest or other solicitation based on an opposition proxy statement. For

further details regarding this policy, please see the Corporate Governance Guidelines attached as Annex A to this proxy statement.

 

Can my shares be voted if I don’t return my proxy card and don’t attend the annual meeting?

If you don’t vote your shares held in street name, your broker can vote your shares on matters that the New York Stock Exchange (nyse) has ruled discretionary. The election of directors, the ratification of kpmg’s appointment, and Citi’s 2008 Executive Compensation are discretionary items. nyse member brokers that do not receive instructions from beneficial owners may vote on these proposals in the following manner: (1) a Citi affiliated member is permitted to vote your shares in the same proportion as all other shares are voted with respect to each such proposal; and (2) all other nyse member brokers are permitted to vote your shares in their discretion. The brokers will not be able to vote your shares for the Citigroup 2009 Stock Incentive Plan and the stockholder proposals if you fail to provide instructions.

 

If you don’t vote your shares registered directly in your name, not in the name of a bank or broker, your shares will not be voted.

 

Could other matters be decided at the annual meeting?

We don’t know of any other matters that will be considered at the annual meeting. If a stockholder proposal that was excluded from this proxy statement is brought before the meeting, we will vote the proxies against the proposal. If any other matters arise at the annual meeting that are properly presented at the meeting, the proxies will be voted at the discretion of the proxy holders.

 

What happens if the meeting is postponed or adjourned?

Your proxy will still be good and may be voted at the postponed or adjourned meeting. You will

still be able to change or revoke your proxy until it is voted.

 

Do I need a ticket to attend the annual meeting?

Yes, you will need an admission ticket or proof of ownership of Citi stock to enter the meeting. When you arrive at the annual meeting, you may be asked to present photo identification, such as a driver’s license. If you are a stockholder of record, you will find an admission ticket attached to the proxy card sent to you. If you plan to attend the meeting, please so indicate when you vote and bring the ticket with you to the meeting. If your shares are held in the name of a bank, broker or other holder of record, your admission ticket will be included in your proxy materials. If you don’t bring your admission ticket, or opted to receive your proxy materials electronically, you will need proof of ownership to be admitted to the meeting. A recent brokerage statement or letter from a bank or broker is an example of proof of ownership. If you arrive at the meeting without an admission ticket, we will admit you only if we are able to verify that you are a Citi stockholder. Due to seating limitations, Citi will not be able to accommodate guests at the annual meeting. Any persons needing special assistance should contact Shareholder Relations at the following email address: shareholderrelations@citi.com.

 

How can I access Citi’s proxy materials and annual report electronically?

This proxy statement and the 2008 annual report are available on Citi’s website at www.citigroup.com. Click on “Corporate Governance,” then “Financial Disclosure,” and then “Annual Reports & Proxy Statements.” Most stockholders can elect not to receive paper copies of future proxy statements and annual reports and can instead view those documents on the Internet.

 

If you are a stockholder of record, you can choose this option and save Citi the cost of producing and mailing these documents by following the instructions provided when you vote over the Internet. If you hold your Citi stock through a bank, broker or other holder of record, please refer to the information provided by that entity for instructions on how to elect not to receive paper copies of future proxy statements and annual reports.

 

If you choose not to receive paper copies of future proxy statements and annual reports, you will receive an e-mail message next year containing the Internet address to use to access Citi’s proxy statement and annual report. Your choice will remain in effect until you tell us otherwise. You do not have to elect Internet access each year. To view, cancel or change your enrollment profile, please go to www.InvestorDelivery.com.

If you received these materials by mail, you should have also received Citi’s annual report to stockholders for 2008 with them. The 2008 annual report is also available on Citi’s website at www.citigroup.com. We urge you to read

these documents carefully. In accordance with the Securities and Exchange Commission’s (sec) rules, the Five-Year Performance Graph appears in the 2008 Annual Report on Form 10-K.

 

Citi continually strives to maintain the highest standards of ethical conduct: reporting results with accuracy and transparency; and maintaining full compliance with the laws, rules and regulations that govern Citi’s businesses. Citi is active in ensuring its governance practices are at the leading edge of best practices. Among other initiatives, Citi in recent years has:

 

 

The current charters of the audit and risk management, nomination and governance, and personnel and compensation committees, as well as Citi’s Corporate Governance Guidelines, Code of Conduct and Code of Ethics, are available in the “Corporate Governance” section of Citi’s website: www.citigroup.com. Citi stockholders may obtain printed copies of these documents by writing to Citigroup Inc., Corporate Governance, 425 Park Avenue, 2nd floor, New York, NY 10022.

The nomination and governance committee’s mandate is to review and shape corporate governance policies and identify qualified individuals for nomination to the board of directors. All of the members of the committee meet the independence standards contained in the nyse corporate governance rules and Citi’s Corporate Governance Guidelines, which are attached to this proxy statement as Annex A. A copy of the committee’s charter is attached to this proxy statement as Annex C.

 

On January 21, 2009, Citi announced that Richard D. Parsons, the lead director and chair of the board’s nomination and governance committee, would succeed Sir Win Bischoff as chairman of the board of directors, effective February 23, 2009. During the period that Citi has an independent chair, there will not be a lead director. In 2004, Citi designated the chair of the nomination and governance committee as lead director. Since 2004 and until February 23, 2009, Citi has had an independent lead director. Details regarding the selection, duties, term, and tenure of the independent lead director are specified in Citi’s Corporate Governance Guidelines, attached as Annex A to this proxy statement.

 

The committee considers all qualified candidates identified by members of the committee, by other members of the board of directors, by senior management and by security holders. In 2008, the committee engaged Heidrick & Struggles for a portion of the year and Spencer Stuart thereafter to assist in identifying and evaluating potential nominees. Stockholders who would like to propose a director candidate for consideration by the committee may do so by

 

submitting the candidate’s name, résumé and biographical information to the attention of the Corporate Secretary, Citigroup Inc., 399 Park Avenue, New York, NY 10043. All proposals for nominations received by the Corporate Secretary will be presented to the committee for its consideration.

 

The committee reviews each candidate’s biographical information and assesses each candidate’s independence, skills and expertise based on a variety of factors, including the following criteria, which have been developed by the committee and approved by the board:

 

 

account and balance the legitimate interests and concerns of all of Citi’s stockholders and our other stakeholders in reaching decisions, rather than advancing the interests of a particular constituency.

 

 

Application of these factors involves the exercise of judgment by the committee and the board.

 

Based on its assessment of each candidate’s independence, skills and qualifications and the criteria described above, the committee will make recommendations regarding potential director candidates to the board.

 

The committee follows the same process and uses the same criteria for evaluating candidates proposed by stockholders, members of the board of directors and members of senior management.

 

For the 2009 annual meeting, we received timely notice of director nominations from thirteen stockholders who nominated themselves or another person to stand for election at the annual meeting. The qualifications of these individuals were discussed at meetings of the nomination and governance committee and the views of Spencer Stuart on the candidates were considered. After deliberation, the committee decided not to include these individuals on the slate of candidates it proposed to the full board for consideration. The committee used the above-mentioned criteria to evaluate the candidates.

Citi’s Corporate Governance Guidelines embody many of our long-standing practices, policies and procedures, which are the foundation of our commitment to best practices. The Guidelines are reviewed at least annually, and revised as necessary, to continue to reflect best practices. The full text of the Guidelines, as approved by the board, is set forth in Annex A to this proxy statement. The Guidelines outline the responsibilities, operations, qualifications and composition of the board.

 

Our goal is that at least two-thirds of the members of the board be independent. The board has recently announced that it unanimously decided to have a majority of new directors as soon as feasible. Certain nominees are included in this proxy statement for election by stockholders. When additional candidates are identified, approved and subsequently appointed as directors by the board, the Company will file a Form 8-K to announce the appointments. A description of our independence criteria and the results of the board’s independence determinations are set forth below.

 

The number of other public company boards on which a director may serve is subject to a case-by-case review by the nomination and governance committee, in order to ensure that each director is able to devote sufficient time to performing his or her duties as a director. Interlocking directorates are prohibited (inside directors and executive officers of Citi may not sit on boards of companies where a Citi outside director is an executive officer).

 

The Guidelines require that all members of the committees of the board, other than the public affairs committee and the executive committee, be independent. Committee members are appointed by the board upon recommendation of the nomination and governance committee. Committee membership and chairs are rotated periodically. The board and each committee have the power to hire and fire independent legal, financial or other advisors, as they may deem necessary, without consulting or obtaining the approval of management.

 

Meetings of the non-management directors are held as part of every regularly scheduled board meeting and are presided over by the independent chairman.

 

If a director has a substantial change in professional responsibilities, occupation or business association, he or she is required to notify the nomination and governance committee and to offer his or her resignation from the board. The nomination and governance committee will evaluate the facts and circumstances and make a recommendation to the board whether to accept the resignation or request that the director continue to serve on the board. If a director assumes a significant role in

 

a not-for-profit entity, he or she is asked to notify the nomination and governance committee.

 

Directors are expected to attend board meetings, meetings of the committees and subcommittees on which they serve and the annual meeting of stockholders. All of the directors then in office attended Citi’s 2008 annual meeting.

 

The nomination and governance committee nominates one of the members of the board to serve as chairman of the board on an annual basis. The nomination and governance committee also conducts an annual review of board performance, and each committee conducts its own self-evaluation. The board and committees may engage an outside consultant to assist in conducting the self-evaluations. The results of these evaluations are reported to the board.

 

Directors have full and free access to senior management and other employees of Citi. New directors are provided with an orientation program to familiarize them with Citi’s businesses and its legal, compliance, regulatory and risk profile. Citi provides educational sessions on a variety of topics, which all members of the board are invited to attend. These sessions are designed to allow directors to, for example, develop a deeper understanding of a business issue or a complex financial product.

 

The board reviews the personnel and compensation committee’s report on the performance of senior executives in order to ensure that they are providing the best leadership for Citi. The board also works with the nomination and governance committee to evaluate potential successors to the ceo.

 

If a director, or an immediate family member who shares the director’s household, serves as a director, trustee or executive officer of a foundation, university, or other not-for-profit organization and such entity receives contributions from Citi and/or the Citi Foundation, such contributions will be reported to the nomination and governance committee at least annually.

 

The Guidelines affirm Citi’s stock ownership commitment, which is described in greater detail in this proxy statement. In 2008, the stock ownership commitment was reviewed in

 

connection with the reorganization of Citi’s senior management structure and was simplified as part of Citi’s continuing efforts to streamline the organization and become more efficient. The members of the management executive committee, consisting of the most senior executives of the Company, and the members of the board of directors have agreed to hold 75% of the shares of common stock they acquire through Citi’s equity programs as long as they remain subject to the stock ownership commitment. Those members of the senior leadership committee, which consists of the management executive committee and an additional 36 executives of the Company who are not also members of the management executive committee, have agreed to hold 50% of the shares of common stock they acquire through Citi’s equity programs as long as they remain subject to the stock ownership commitment.

 

The Guidelines restrict certain financial transactions between Citi and its subsidiaries on the one hand and directors, senior management and their immediate family members on the other. Personal loans to executive officers and directors of Citi and its public issuer subsidiaries and members of the management executive committee, or immediate family members who share any such person’s household, are prohibited, except for mortgage loans, home equity loans, consumer loans, credit cards, charge cards, overdraft checking privileges and margin loans to employees of a broker-dealer subsidiary of Citi made on market terms in the ordinary course of business. See Certain Transactions and Relationships, Compensation Committee Interlocks and Insider Participation on page 10 of this proxy statement.

 

The Guidelines prohibit investments or transactions by Citi or its executive officers and those immediate family members who share an executive officer’s household in a partnership or other privately-held entity in which an outside director is a principal or in a publicly-traded company in which an outside director owns or controls more than a 10% interest. Directors and those immediate family members who share the director’s household are not permitted to receive initial public offering allocations. Directors and their immediate family members may participate in Citi-sponsored investment activities, provided

 

they are offered on the same terms as those offered to similarly situated non-affiliated persons. Under certain circumstances, or with the approval of the appropriate committee, members of senior management may participate in certain Citi-sponsored investment opportunities. Finally, there is a prohibition on certain investments by directors and executive officers in third-party entities when the opportunity comes solely as a result of their position with Citi.

The board has adopted categorical standards to assist the board in evaluating the independence of each of its directors. The categorical standards, which are set forth below, describe various types of relationships that could potentially exist between a director or an immediate family member of a director and Citi and set thresholds at which such relationships would be deemed to be material. Provided that no relationship or transaction exists that would disqualify a director under the categorical standards and no other relationships or transactions exist of a type not specifically mentioned in the categorical standards that, in the board’s opinion, taking into account all facts and circumstances, would impair a director’s ability to exercise his or her independent judgment, the board will deem such person to be independent.

 

In 2008, the board and the nomination and governance committee reviewed directors’ responses to a questionnaire asking about their relationships with Citi, and those of their immediate family members and primary business or charitable affiliations and other potential conflicts of interest, as well as data collected by Citi’s businesses related to transactions, relationships or arrangements between Citi on the one hand and a director, immediate family member of a director, or a primary business or charitable affiliation of a director, on the other. The board reviewed the relationships or transactions between the directors or immediate family members of the directors or their primary business or charitable affiliations on the one hand and Citi on the other and determined that the relationships or transactions complied with the Corporate Governance Guidelines and the related

 

categorical standards. The board also determined that, applying the guidelines and standards, which are intended to comply with the nyse corporate governance rules, and all other applicable laws, rules and regulations, each of the following directors standing for re-election and the nominees standing for election are independent: C. Michael Armstrong, Alain J.P. Belda, John M. Deutch, Jerry A. Grundhofer, Andrew N. Liveris, Anne M. Mulcahy, Michael E. O’Neill, Richard D. Parsons, Judith Rodin, Robert L. Ryan, Anthony M. Santomero and William S. Thompson, Jr.

 

Categorical Standards

 

In addition, no member of the audit and risk management committee, nor any immediate family member who shares such individual’s household, nor any entity in which an audit and risk management committee member is a partner, member or executive officer shall, within the last three years, have received any payment for accounting, consulting, legal, investment banking or financial advisory services provided to the Company.

 

 

by the Company to, and to the Company from, any company of which a director is an executive officer or employee or where an immediate family member of a director is an executive officer, must not exceed the greater of $1 million or 2% of such other company’s consolidated gross revenues in any single fiscal year.

 

 

Annual contributions in any of the last three calendar years from the Company and/or the Citigroup Foundation to a foundation, university, or other non-profit organization (“Charitable Organization”) of which a director, or an immediate family member who shares the director’s household, serves as a director, trustee or executive officer (other than the Citigroup Foundation and other Charitable Organizations sponsored by the Company) may not exceed the greater of $250,000 or 10% of the Charitable Organization’s annual consolidated gross revenue.

 

 

 

 

 

 

 

 

The board may determine that a director is independent notwithstanding the existence of an immaterial relationship or transaction between the Company and (i) the director, (ii) an immediate family member of the director or (iii) the director’s or immediate family member’s business or charitable affiliations, provided Citi’s proxy statement includes a specific description of such relationship as well as the basis for the board’s determination that such relationship does not preclude a determination that the director is independent. Relationships or transactions between the Company and (i) the director, (ii) an immediate family member of the director or (iii) the director’s or immediate

 

 

family member’s business or charitable affiliations that comply with the Corporate Governance Guidelines, including but not limited to the director independence standards that are part of the Corporate Governance Guidelines and the sections titled Financial Services, Personal Loans and Investments/Transactions, are deemed to be categorically immaterial and do not require disclosure in the proxy statement (unless such relationship or transaction is required to be disclosed pursuant to Item 404 of sec Regulation S-K).

 

For purposes of the Corporate Governance Guidelines, (i) the term “immediate family member” means a director’s or executive officer’s (designated as such pursuant to Section 16 of the Securities Exchange Act of 1934) spouse, parents, step-parents, children, step-children, siblings, mother- and father-in law, sons- and daughters-in-law, and brothers and sisters-in-law and any person (other than a tenant or domestic employee) who shares the director’s household; (ii) the term “primary business affiliation” means an entity of which the director or executive officer, or an immediate family member of such a person, is an officer, partner or employee or in which the director, executive officer or immediate family member owns directly or indirectly at least a 5% equity interest; and (iii) the term “related party transaction” means any financial transaction, arrangement or relationship in which (a) the aggregate amount involved will or may be expected to exceed $120,000 in any fiscal year, (b) the Company is a participant, and (c) any related person (any director, any executive officer of the Company, any nominee for director, any shareholder owning in excess of 5% of the total equity of the Company, and any immediate family member of any such person) has or will have a direct or indirect material interest.

The board has adopted a policy setting forth procedures for the review, approval and monitoring of transactions involving Citi and related persons (directors and executive officers or their immediate family members). A copy of

 

Citi’s Policy on Related Party Transactions is available in the “Corporate Governance” section of Citi’s website: www.citigroup.com. Under the policy, the nomination and governance committee is responsible for reviewing and approving all related party transactions involving directors or an immediate family member of a director. Directors may not participate in any discussion or approval of a related party transaction in which he or she or any member of his or her immediate family is a related person, except that the director shall provide all material information concerning the related party transaction to the nomination and governance committee. The nomination and governance committee is also responsible for reviewing and approving all related party transactions valued at more than $50 million involving an executive officer or an immediate family member of an executive officer. The transaction review committee, comprised of the chief financial officer, chief risk officer, general counsel, chief compliance officer, and head of corporate affairs, is responsible for reviewing and approving all related party transactions valued at less than $50 million involving an executive officer or an immediate family member of an executive officer. The policy also contains a list of categories of transactions involving directors or executive officers, or their immediate family members, that are pre-approved under the policy, and therefore need not be brought to the nomination and governance committee or transaction review committee for approval.

 

The nomination and governance committee and the transaction review committee will review the following information when assessing a related party transaction:

 

 

 

 

Robert Rubin entered into an Aircraft Time Sharing Agreement with Citiflight, Inc. (a subsidiary of Citigroup Inc.) on August 10, 2006 that allows him to reimburse Citi for the cost of his personal use of corporate aircraft. Mr. Rubin reimbursed Citi $633,918 related to his personal use of corporate aircraft during 2008. Vikram Pandit entered into an Aircraft Time Sharing Agreement with Citiflight on December 12, 2007, that allows him to reimburse Citi for any personal use of Citi’s aircraft. Mr. Pandit reimbursed Citi $171,808 related to his personal use of corporate aircraft during 2008.

 

During 2008, certain Citi and Banamex executives used, for Citi-related travel, private aircraft owned by Aeropersonal, a company in which Roberto Hernández has an ownership interest. The nomination and governance committee reviewed and ratified the executives’ business-related use of aircraft owned by Aeropersonal during 2008 and approved the business-related use of Aeropersonal’s services by Citi and Banamex executives in 2009. Citi reimbursed Aeropersonal $1,002,126 for business-related services provided to Citi and Banamex executives.

 

In April 2007, Citi entered into an agreement to purchase 100% of the outstanding partnership interests in Old Lane Partners L.P. (Old Lane), a hedge fund firm co-founded by Vikram Pandit and John Havens in which each of Vikram Pandit, John Havens and Brian Leach had an interest. At the time of the Old Lane acquisition in 2007, a substantial portion of the purchase price paid to the former owners of Old Lane was required to be invested in the Old Lane Fund until July 2011, the fourth anniversary of the closing of the transaction. Accordingly, on behalf

 

of each of Vikram Pandit and John Havens $100,273,630 was invested (a substantial portion of which was subject to forfeiture until July 2011) and on behalf of Brian Leach $10,862,222 was invested in the Old Lane Fund. In June 2008, Citi purchased substantially all of the assets in the Old Lane Fund and redeemed substantially all of the interests of investors in the Old Lane Fund. In connection with the redemptions of investors’ interests, distributions were made in respect of a portion of the investments made by the former owners of Old Lane in the Old Lane Fund, including $79,706,630, each, in the case of Mr. Pandit and Mr. Havens, and $8,634,283, in the case of Mr. Leach. The amounts distributed are invested, and all future distributions will be invested, in an account at the Citi Private Bank for the remainder of the period ending July 2011. The funds may be earlier withdrawn in the event the executive dies or his employment with Citi terminates by reason of his disability or without cause or for good reason or, in the case of Mr. Leach, upon termination of his employment with Citi for any reason. A substantial portion of Mr. Pandit’s and Mr. Havens’ investment remains subject to forfeiture if the executive’s employment with Citi terminates for cause or without good reason before July 2011.

 

State Street may be deemed to be the beneficial owner of more than 5% of the outstanding shares of our common stock as a result of its role as custodian of our 401(k) plan and other unaffiliated accounts and investment funds. For further information, see “Stock Ownership — Owners of More than 5% of Our Common Stock” in this proxy statement. We and certain of our subsidiaries have engaged in transactions in the ordinary course of business with State Street and certain of its affiliates during 2008. These transactions were on substantially the same terms as comparable transactions with unrelated third parties.

 

Officers and employees of Citi and members of their immediate families who share their household or are financially dependent upon them who wish to purchase or sell securities in brokerage transactions are generally required by Citi’s policies to do so through a Citi broker-dealer affiliate. Certain of our directors and members of their immediate families have

 

brokerage accounts at our broker-dealer affiliates. Transactions in such accounts are offered on substantially the same terms as those offered to other similarly-situated customers. Citi’s affiliates also may, from time to time, enter into transactions on a principal basis involving the purchase or sale of securities, derivative products and other similar transactions in which our directors, officers and employees, or members of their immediate families have an interest. All of these transactions are entered into in the ordinary course of business on substantially the same terms, including interest rates and collateral provisions, as those prevailing at the time for comparable transactions with our other similarly situated customers. For certain transactions with officers and employees, these affiliates may offer discounts on their services.

 

Citi has established funds in which employees have invested. In addition, certain of our directors and executive officers have from time to time invested their personal funds directly or directed that funds for which they act in a fiduciary capacity be invested in funds arranged by Citi’s subsidiaries on the same terms and conditions as the other outside investors in these funds, who are not our directors, executive officers, or employees. Other than certain “grandfathered” investments, in accordance with sarbanes-oxley and the Citi Corporate Governance Guidelines, executive officers may invest in certain Citi-sponsored investment opportunities only under certain circumstances and with the approval of the appropriate committee.

 

In 2008, Citi performed investment banking, financial advisory and other services in the ordinary course of our business for certain organizations in which some of our directors are officers or directors. Citi may also, in the ordinary course of business, have sponsored investment opportunities in which such organizations participated. In addition, in the ordinary course of business, Citi may use the products or services of organizations in which some of our directors are officers or directors.

 

The persons listed on page 36 were the only members of the personnel and compensation committee during 2008. No member of the personnel and compensation committee was a

 

One-half of the loan is full recourse to the employee via a guaranty and the other half is non-recourse to the employee. Before any distributions (other than tax distributions) are made to an employee, distributions are paid by each fund to Citi to pay interest on and to repay the loan.

 

Interest on the loans accrues quarterly at a rate determined from time to time by Citi as of the first business day of each quarter equal to the greater of (i) the three-month London Inter-Bank Offered Rate plus 75 basis points (as determined by Citi), and (ii) the short-term applicable federal rate calculated in accordance with Section 1274(d) of the Internal Revenue Code of 1986, as amended (irc) (as determined by Citi).

 

In 2008, two employees who participated in the Citigroup Capital Partners II Employee Master Fund, L.P. became executive officers and, pursuant to the fund’s offering memorandum and in compliance with Sarbanes-Oxley, were required to repay their outstanding leverage. During 2008, Shirish Apte reimbursed Citi $664,000 and James Forese reimbursed Citi $1.66 million for leverage outstanding to the Citigroup Capital Partners II Employee Master Fund, L.P.

 

During 2008, no loans were made under the Citigroup Employee Fund of Funds I, LP to any current or former executive officer. For the Citigroup Capital Partners I (Master Fund), LP, no loans were made to any current or former executive officer that exceeded $120,000. The

 

 

following distributions with respect to investments in these two funds were made to current and former executive officers in 2008:

 

 

 

 

 *  Amount does not exceed $120,000.

 

Citi’s business practices committees, at the corporate level and in each of its business units, review business activities, sales practices, products, potential conflicts of interest, complex transactions, suitability and other reputational concerns providing guidance to ensure that Citi’s business practices meet the highest standards of ethics, integrity and professional behavior. These committees, comprised of our most senior executives, focus on reputational risk while our businesses ensure that our policies are adhered to and emphasize our commitment to the franchise.

 

Business practices concerns may be surfaced by a variety of sources, including business practices working groups, other in-business committees or the control functions. The business practices committees guide the development of business practices and may change them when necessary or appropriate. These issues are reported on a regular basis to the Citi business practices committee and the board.

The board has adopted a Code of Ethics for Financial Professionals governing the principal executive officers of Citi and its reporting subsidiaries and all Citi professionals worldwide serving in a finance, accounting, treasury, tax or investor relations role. A copy of the Code of Ethics is available on our website at www.citigroup.com. Click on “Corporate Governance” and then “Code of Ethics for Financial Professionals.” It has also been filed as an exhibit to our 2002 Annual Report on Form 10-K. We intend to disclose amendments to, or waivers from, the Code of Ethics, if any, on our website.

Citi strongly encourages employees to raise possible ethical issues. Citi offers several channels by which employees and others may report ethical concerns or incidents, including, without limitation, concerns about accounting, internal controls or auditing matters. We provide an Ethics Hotline that is available 24 hours a day, seven days a week with live operators who can connect to translators in multiple languages, a dedicated e-mail address, fax line, a web-link and conventional mailing address. Individuals may choose to remain anonymous. We prohibit retaliatory actions against anyone who, in good faith, raises concerns or questions regarding ethics, discrimination or harassment matters, or reports suspected violations of other applicable laws, regulations or policies. Calls to the Ethics Hotline are received by a vendor, which reports

 

 

the calls to Citi’s Ethics Office of Global Compliance for review and investigation.

The board has adopted a Code of Conduct, which outlines the laws, rules, regulations and Citi policies that govern the activities of Citi and sets the standards of business behavior and ethics that apply across Citi. The Code of Conduct applies to every director, officer and employee of Citi and each of its subsidiaries. All employees, directors and officers are required to read and follow the Code of Conduct. In addition, other persons performing services for Citi may be subject to the Code of Conduct by contract or agreement. A copy of the Code of Conduct is available on our website at www.citigroup.com. Click on “Corporate Governance” and then “Code of Conduct.”

Stockholders or other interested parties who wish to communicate with a member or members of the board of directors, including the Chairman or the non-management directors as a group, may do so by addressing their correspondence to the board member or members, c/o the Corporate Secretary, Citigroup Inc., 399 Park Avenue, New York, NY 10043. The board of directors has approved a process pursuant to which the office of the Corporate Secretary will review and forward correspondence to the appropriate person or persons for response.

Citi has long encouraged stock ownership by its directors, officers and employees to align their interests with the long-term interests of stockholders.

 

As part of our commitment to aligning employee and stockholder interests, members of the management executive committee and members of the board of directors have agreed to hold 75% of the shares of common stock they acquire through Citi’s equity programs as long as they remain subject to the stock ownership commitment. Senior leadership committee members have agreed to hold 50% of the shares of common stock they acquire through Citi’s

equity programs as long as they remain subject to the stock ownership commitment. A summary of the stock ownership commitment appears in Citi’s Corporate Governance Guidelines, which are attached to this proxy statement as Annex A.

 

Exceptions to the stock ownership commitment include gifts to charity, certain estate planning transactions, and certain other limited circumstances. In addition, the commitment relates to the net number of shares received in connection with the exercise of employee stock options or paying withholding taxes under other equity compensation programs.

 

     (A) The share numbers in these columns have been restated to reflect equitable adjustments made to all Citi options outstanding on August 20, 2002 in respect of the distribution to all stockholders of shares of Travelers Property Casualty Corp. For each option grant, the number of options was increased by a factor

 

of 1.0721990 and the exercise price was decreased by a factor of .9326627. The expiration and vesting dates of each option did not change.

 

At February 27, 2009, no director, nominee or executive officer owned as much as 1% of Citi’s common stock.

Of the shares shown on the preceding page, all of which are deemed to be beneficially owned under sec rules, some portion may not be held directly by the director or executive officer. The following table details the various forms in which directors or executive officers indirectly hold shares. Such indirectly-held shares may be shares:

 

 

 

The board of directors has nominated all of the current directors for re-election at the 2008 annual meeting except for Sir Win Bischoff and Messrs. Derr, Hernandez, Rubin and Thomas, who are retiring from the board effective at the annual meeting. Directors are not eligible to stand for re-election after reaching the age of 72. The board has recently announced that it

 

unanimously decided to have a majority of new directors as soon as feasible. Certain nominees are included in this proxy statement for election by stockholders. When additional candidates are identified, approved and subsequently appointed as directors by the board, the Company will file Forms 8-K to announce the appointments.

The board of directors recommends that you vote for each of
the following nominees.

 

The one-year terms of all of Citi’s directors expire at the annual meeting.

The board of directors met 25 times in 2008. During 2008, the audit and risk management committee met 12 times, the personnel and compensation committee met 15 times and the nomination and governance committee met 8 times.

 

Each director attended at least 75 percent of the total number of meetings of the board of directors and board committees of which he or she was a member in 2008.

Citi’s non-management directors meet in executive session without any management directors in attendance each time the full board convenes for a regularly scheduled meeting, which is usually 7 times each year, and, if the board convenes a special meeting, the non-management directors may meet in executive session. Until the appointment of Richard Parsons as Chairman, the lead director presided at each executive session of the non-management directors. The independent chairman now presides at such sessions.

The standing committees of the board of directors are:

 

The audit and risk management committee, which assists the board in fulfilling its oversight responsibility relating to (i) the integrity of Citi’s financial statements and financial reporting process and Citi’s systems of internal accounting and financial controls; (ii) the performance of the internal audit function — Audit and Risk Review; (iii) the annual independent integrated audit of Citi’s consolidated financial statements and internal control over financial reporting, the engagement of the independent registered public accounting firm and the evaluation of the independent registered public accounting firm’s qualifications, independence and performance; (iv) policy standards and guidelines for risk assessment and risk management; (v) the compliance by Citi with legal and regulatory requirements, including Citi’s disclosure controls and procedures; and (vi) the fulfillment of the other responsibilities set out in its charter, as adopted by the board. The report of the committee required by the rules of the sec is included in this proxy statement. Subcommittees of the audit and risk management committee cover Citi’s corporate and consumer businesses.

 

The board has determined that each of Mrs. Mulcahy, Dr. Rodin, and Messrs. Deutch, Liveris, Ricciardi and Ryan qualifies as an “audit committee financial expert” as defined by the sec and, in addition to being independent according to the board’s independence standards as set out in its Corporate Governance Guidelines, is independent within the meaning of applicable sec rules, the corporate governance rules of the nyse, and the fdic guidelines.

 

The audit and risk management committee charter, as adopted by the board, is attached to this proxy statement as Annex B. A copy of the charter is also available in the “Corporate Governance” section of Citi’s website: www.citigroup.com.

 

The nomination and governance committee, which is responsible for identifying individuals qualified to become board members and recommending to the board the director nominees for the next annual meeting of stockholders. It leads the board in its annual review of the board’s

 

performance and recommends to the board director candidates for each committee for appointment by the board. The committee takes a leadership role in shaping corporate governance policies and practices, including recommending to the board the Corporate Governance Guidelines and monitoring Citi’s compliance with these policies and the Guidelines. The committee is responsible for reviewing and approving all related party transactions involving directors or an immediate family member of a director and any related party transaction involving an executive officer or immediate family member of an executive officer, if the transaction is valued at $50 million or more. See Certain Transactions and Relationships, Compensation Committee Interlocks and Insider Participation on page 10 of this proxy statement for a complete description of the Policy on Related Party Transactions. The committee, as part of its executive succession planning process, evaluates and nominates potential successors to the ceo and provides an annual report to the board on ceo succession. The committee also reviews director compensation and benefits, Citi’s Code of Conduct, the Code of Ethics for Financial Professionals and other internal policies to monitor that the principles contained in the Codes are being incorporated into Citi’s culture and business practices. The nomination and governance committee may also exercise all powers of the board of directors between meetings of the board.

 

The board has determined that, in addition to being independent according to the board’s independence standards as set out in its Corporate Governance Guidelines, each of the members of the nomination and governance committee is independent according to the corporate governance rules of the nyse. Each of such directors is a “non-employee director,” as defined in Section 16 of the Securities Exchange Act of 1934, and is an “outside director,” as defined by Section 162(m) of the irc.

 

The nomination and governance committee charter, as adopted by the board, is attached to this proxy statement as Annex C. A copy of the charter is also available in the “Corporate Governance” section of Citi’s website: www.citigroup.com.

 

The personnel and compensation committee, which is responsible for determining the compensation for the ceo, and approving the compensation structure for senior management, including the management executive committee, members of the senior leadership committee, the most senior managers of corporate staff, and other highly paid professionals in accordance with guidelines established by the committee from time to time. The committee annually reviews and discusses the Compensation Discussion and Analysis (cd&a) with management. The committee has also produced an annual report on executive compensation that is included in this proxy statement (on page 36 below). Further, the committee approves broad-based and special compensation plans for all of Citi’s businesses.

 

The committee regularly reviews Citi’s management resources, succession planning and development activities, as well as the performance of senior management. The committee is also charged with monitoring Citi’s performance toward meeting its goals on employee diversity.

 

The committee is responsible for evaluating the performance of and determining the compensation for the ceo and approving the compensation for the management executive committee. The committee also approves the compensation structure for senior management, including members of the senior leadership committee, the most senior managers of corporate staff and other highly paid professionals, in accordance with guidelines established by the committee from time to time. The committee regularly reviews the design and structure of Citi’s compensation programs to ensure that management’s interests are aligned with stockholders and that the compensation programs are aligned with Citi’s strategic priorities. See the cd&a on page 37 of this proxy statement.

 

In order to ensure uninterrupted operation of Citi in the event of the unplanned departure or unavailability of Citi’s ceo, Citi’s personnel and compensation committee evaluates a number of individuals who could be asked to assume the ceo’s duties in the event of an unexpected vacancy. The committee then discusses the list with the board which then formalizes its choices

 

of one or more of such individuals. This process is conducted at a regularly scheduled board meeting on an annual basis.

 

With respect to regular succession of the ceo and senior management, Citi’s board evaluates internal, and, when appropriate, external, candidates. To find external candidates, Citi seeks input from the members of the board and senior management and/or from recruiting firms. To develop internal candidates, Citi engages in a number of practices, formal and informal, designed to familiarize the board with Citi’s talent pool. The formal process involves an annual talent review conducted by senior management at which the board studies the most promising members of senior management. The board learns about each person’s experience, skills, areas of expertise, accomplishments and goals. This review is conducted at a regularly scheduled board meeting on an annual basis. On an informal basis, members of senior management are periodically asked to make presentations to the board at board meetings and at the board strategy sessions. These presentations are made by senior managers at the various business units as well as those who serve in corporate functions. The purpose of the formal review and informal interaction is to ensure that board members are familiar with the talent pool inside Citi from which the board would be able to choose successors to the ceo and evaluate succession for other senior managers as necessary from time to time.

 

The committee also has the authority to retain and/or engage special consultants or experts to advise the committee, as the committee may deem appropriate or necessary in its sole discretion, and receives funding from Citi to engage such advisors. The committee has retained Independent Compensation Committee Adviser, LLC (icca) to provide the committee with comparative data on executive compensation and advice on Citi’s compensation programs for senior management. icca does no other work for Citi. The amount the personnel and compensation committee approved for payment to icca in 2008 is disclosed in the cd&a on page 50 of this proxy statement. Citi has retained Mercer Human Resource Consulting for benchmarking and analyses with respect to executive compensation and benefit practices, and other compensation matters for all

 

employees, including the named executive officers. The committee instructed the consultants to meet with senior management to review Citi’s process, financial performance, and market data. The consultants were asked to evaluate the compensation recommendations for senior management in light of these factors and management’s description of the performance assessment. Towers Perrin also provided market data regarding compensation trends in the financial services industry.

 

The board has determined that in addition to being independent according to the board’s independence standards as set out in its Corporate Governance Guidelines, each of the members of the personnel and compensation committee is independent according to the corporate governance rules of the nyse. Each of such directors is a “non-employee director,” as defined in Section 16 of the Securities Exchange Act of 1934, and is an “outside director,” as defined by Section 162(m) of the irc.

 

The personnel and compensation committee charter is attached to this proxy statement as

 

Annex D. A copy of the charter, as adopted by the board, is also available in the “Corporate Governance” section of Citi’s website: www.citigroup.com.

 

The public affairs committee, which is responsible for reviewing Citi’s policies and programs that relate to public issues of significance to Citi and the public at large and reviewing relationships with external constituencies and issues that impact Citi’s reputation. The committee also has responsibility for reviewing public policy and reputation issues facing Citi, reviewing political and charitable contributions made by Citi and the Citi Foundation, reviewing Citi’s policies and practices regarding supplier diversity, and reviewing Citi’s sustainability policies and programs, including environmental and human rights.

 

The public affairs committee charter, as adopted by the board, is attached to this proxy statement as Annex E. A copy of the charter is also available in the “Corporate Governance” section of Citi’s website: www.citigroup.com.

 

Calpine Corporation, in connection with the departure of its Chairman, President and Chief Executive Officer, named Mr. Derr Chairman of the Board and Acting Chief Executive Officer in November 2005. Mr. Derr, who had previously held the position of Lead Director of Calpine, was Acting Chief Executive Officer for approximately two weeks. Mr. Derr continues to serve on Calpine’s Board. On December 20, 2005, Calpine Corporation filed for federal bankruptcy protection under Chapter 11.

 

There are no legal proceedings to which any director, officer, nominee or principal shareholder, or any affiliate thereof, is a party adverse to Citi or has a material interest adverse to Citi.

Directors’ compensation is determined by the board. Since its initial public offering in 1986, Citi has paid outside directors all or a portion of their compensation in common stock, to ensure that the directors have an ownership interest in common with other stockholders. The nomination and governance committee makes recommendations to the board with respect to compensation of directors. The committee periodically reviews benchmarking assessments in order to determine the level of compensation to attract qualified candidates for board service and to reinforce our practice of encouraging stock ownership by our directors. In 2008, the committee reviewed the current compensation program and determined that no changes were required. Effective January 1, 2005, the last time director compensation was adjusted, non-employee directors, other than Mr. Hernández, who, except as described below, has waived receipt of compensation for his services as a director, receive an annual cash retainer of $75,000 and a deferred stock award valued at $150,000. The deferred stock award is granted on the same date that annual incentives are granted to the senior executives. The deferred stock

 

award vests on the second anniversary of the date of the grant, and directors may elect to defer receipt of the award beyond that date. Directors may elect to receive all or a portion of their deferred stock award and cash retainer in the form of common stock, and directors may elect to defer receipt of this common stock. Directors also may elect to receive their cash retainer in the form of an option to purchase shares of Citi common stock. Stock options are also granted on the same date that stock options are granted to the senior executives. The options vest and become exercisable on the second anniversary of the grant date and expire six years after the grant date. Beginning in 2009, directors may no longer elect to receive stock options.

 

Directors who are employees of Citi or its subsidiaries do not receive any compensation for their services as directors.

 

Except as described below, directors receive no additional compensation for participation on board committees or subcommittees. Committee and subcommittee chairs receive additional compensation of $15,000 per year, except for the chairs of the audit and risk management committee and each subcommittee thereof, who receive additional compensation of $35,000 per year. This additional compensation is paid in the same manner as the annual cash retainer, but directors may not elect stock options for this portion of their fee. Additional compensation for special assignments may be determined on a case by case basis. On January 1, 2009, Messrs. Deutch, Ricciardi and Ryan were elected to the Citibank, N.A. Board of Directors and each will receive $50,000 as an annual retainer for his service. Citibank, N.A. is a wholly-owned subsidiary of Citi.

 

Citi reimburses its board members for expenses incurred in attending board and committee meetings or performing other services for Citi in their capacities as directors. Such expenses include food, lodging and transportation.

 

* As Citi’s stock price has declined significantly since the granting of these awards, the value of the awards shown in the table does not reflect their current value.

 

(a) Directors may elect to receive all or a portion of the cash retainer in the form of common stock and may elect to defer receipt of common stock. Directors also may elect to receive their cash retainer in the form of an option to purchase shares of Citi common stock. Directors may elect to receive a portion of their deferred stock awards in the form of an option to purchase shares of Citi common stock. Beginning in 2009, directors may no longer elect to receive any of their compensation in the form of options to purchase shares of common stock.

 

The following directors elected to receive all or a portion of their 2008 retainer and deferred stock award in stock options:

 

 

(b) The fair value of the stock awards and stock options appearing in the Non-Employee Director Compensation Table were calculated in accordance with the December 2006 sec regulations. In determining the compensation expense for all equity awards required to be disclosed in the table under the December 2006 sec regulations, it was assumed that sfas 123(r) was in effect on the grant date of each such equity award. The number of shares of deferred stock granted in 2008 and the grant date fair

 

value of those awards, determined in accordance with sfas 123(r), are set forth below:

 

 

* Mr. Ricciardi, who joined the Board on July 21, 2008, received an award of deferred stock with a grant price of $19.356.

 

The Stock Awards column in the Non-Employee Director Compensation Table also includes shares of common stock that directors elected to receive in exchange for all or a portion of their cash retainer and chair fees, as applicable. These directors also elected to defer receipt of the shares.

 

The aggregate number of deferred stock awards outstanding at the end of 2008 was:

 

 

(c) The amount reported in this column was calculated in accordance with the December 2006 sec regulations which are based on income statement expense under sfas 123(r), and which, depending on the circumstances of each director, may differ from the grant-date fair value formula applied uniformly for compensation purposes. The assumptions made when calculating the amounts in this column are found in footnote 8 to the Consolidated Financial Statements of Citigroup Inc. and its Subsidiaries, as filed with the sec on Form 10-K for 2008. Aggregate total

 

numbers of stock option awards outstanding are shown in the Director Stock Option Grant Table below. The grant date fair value of the options they received in 2008 was:

 

 

For the awards granted to all directors who elected to receive options as part of their compensation for 2008, the exercise price was $24.45. The number of shares in the option grant is calculated by dividing the dollar amount elected by the fair market value of Citi common stock on the grant date and multiplying that amount by four.

 

(d) Travelers Property Casualty Corp., formerly a subsidiary of Citi, sponsored a Director’s Charitable Award Program originally adopted by the Travelers Corporation, a Citi predecessor, under which all members of its board of directors were eligible, subject to certain vesting requirements, to have the program make charitable contributions to eligible tax-exempt organizations recommended by the directors up to an aggregate of $1,000,000. In connection with Citi’s distribution of shares of Travelers to its stockholders, at which time Travelers became a separate public company, Citi assumed responsibility under the program with respect to the vested interests of all participants in the program. Travelers initially funded the program through the purchase of life insurance policies on the lives of the directors. Generally, eligible directors were paired for purposes of buying second-to-die life insurance policies. The proceeds of these policies are used to fund the contributions to the organizations selected by the directors immediately upon the death of both vested directors in five equal, annual installments. Mr. Armstrong, a current member of Citi’s board, was a director of Travelers and a participant in the Director’s Charitable Award Program. The annual costs Citi incurs in connection with the administration of this program which are attributable to Mr. Armstrong amount to $2,877.

 

(e) George David retired from the board on April 22, 2008.

 

(f) In consideration of his service as non-executive chairman of Banco Nacional de México, an indirect wholly owned subsidiary of Citi, and other duties and services performed for such entity and its affiliates during 2008, including governmental and client relations and strategic development, Citi, or certain of its

 

Mexican affiliates, provided certain security services to Roberto Hernández and members of his immediate family as well as office, secretarial and related services, and aircraft usage for Citi business-related purposes. The aggregate amount of such expenses for Mr. Hernández for 2008 is estimated to be approximately $2,218,000.

(A) Dividend equivalents are paid quarterly, in the same amount per share and at the same time as dividends are paid to stockholders. Interest accrues on the amount of the dividend equivalent from the payment date until the end of the quarter, at which time the dividend equivalent is either distributed to the director in cash or reinvested in additional shares of deferred stock. Differences in the amounts paid to directors can be attributed to a variety of factors including length of service and elections

made by individual board members with respect to the form in which they receive their cash retainers or deferred stock awards. Generally, directors who have served on the board for longer periods of time have accumulated more shares in their deferred stock accounts than directors with a shorter tenure and as a result receive higher dividend equivalent payments. The number of shares owned by each director is reported on page 16.

 

Overview

Citi and the entire financial services industry are facing unprecedented challenges and profound change and 2008 was a particularly challenging year. Citi’s overarching priority has been to reposition the Company to capitalize on the best opportunities for global growth in a rapidly changing financial environment. This repositioning includes reducing the assets on the balance sheet, reducing expenses, and streamlining businesses for future profitable growth. It also includes a redesign of the compensation structure and a substantial turnover of top management.

 

The objectives of Citi’s executive compensation programs have been to attract and retain the best talent, motivate and reward executives to perform by linking incentive compensation to demonstrable performance-based criteria, align the long term interests of management with those of stockholders, and deliver compensation at levels that are competitive to the financial services market. These objectives still hold true and remain as part of Citi’s compensation philosophy; reflecting 2008 financial results and the evolving financial services landscape, Citi has made changes to the structure of compensation that will better result in meeting these objectives.

 

The extraordinary events of 2008 have significantly decreased total compensation for 2008. The final awards made by the committee are shown on page 45.

 

Objectives of Citi’s executive compensation programs

Citi’s compensation programs are designed to support:

 

 

 

 

Compensation Structure

The compensation structure has been redesigned to better meet the objectives summarized above. In particular, awards are now more closely tied to future performance and risk management is now a more integrated part of the compensation. Set forth below is a discussion of each element of compensation, the reason Citi pays each element, how each amount is determined, and how that element fits into Citi’s compensation philosophy. Note that the American Recovery and Reinvestment Act of 2009, which is described in this report, and other subsequent legislation and regulations will modify or could modify the executive compensation policies set forth herein prospectively and/or retroactively.

 

 

Executives have a range of base salaries, and as a matter of company policy, annual base salary is capped at $1,000,000 for the members of the management executive

 

committee. Base pay was frozen for 2009 across Citi, and none of the members of the management executive committee received a base pay increase from 2008 to 2009.

 

 

 

 

 

 

 

 

nonvested awards or repayment of vested awards) if such compensation is based on statements of earnings, gains or other criteria that are later shown to be materially inaccurate, without regard to whether the inaccuracy arose from any misconduct. The increase in the portion of compensation of senior executives that is awarded as deferred compensation will make it easier for Citi to “clawback” or cancel incentive or other compensation if the basis on which it was awarded or paid is later shown to be materially inaccurate.

 

Prior Award Structures

 

 

 

 

interests of the named executive officers even further with the interests of stockholders. Accordingly, the named executive officers held significant amounts of stock throughout 2008 and experienced a substantial diminution in wealth along with other stockholders. In addition, due to their significant stock holdings, the executive officers, like other stockholders, received an income reduction when the board of directors reduced the dividend to stockholders in 2008.

 

 

the Company-sponsored U.S. benefit programs on the same terms and conditions as those made available to U.S. salaried employees or expatriates generally. Basic health benefits, life insurance, disability benefits and similar programs are provided to ensure that employees have access to healthcare and income protection for themselves and their family members. Under Citi’s U.S. medical plans, higher-paid employees are required to pay a significantly higher amount of the total premiums, while the premiums paid by lower paid employees receive a higher subsidy from Citi.

 

 

As authorized by its stockholder-approved stock incentive plans, Citi pays dividend equivalents on nonvested restricted or deferred stock awards under cap and certain other equity awards on the same basis to all employees receiving such awards, which includes a significant percentage of all employees worldwide. (The performance-vesting stock awards granted on January 14, 2009 do not provide for dividend equivalents on nonvested shares.) Where dividend equivalents are paid on equity awards, the dividend rate is the same for the named executive officers as for other stockholders. This practice is consistent with and furthers the goal of aligning the interests of employees with those of stockholders. Accordingly, the named executive officers and other employees will receive a direct decrease in income, in proportion to their share holdings, as a result of reduced dividends.

 

Subsequent legislation. On February 17, 2009, the American Recovery and Reinvestment Act of 2009 (the Act), amending eesa, was enacted. The Act, eesa, and other subsequent legislation and regulations will modify or could modify the executive compensation policies set forth herein prospectively and/or retroactively. In particular, during the period a tarp obligation remains outstanding, the Act (a) limits compensation to exclude incentives for senior executive officers to

 

take unnecessary and excessive risks that threaten the value of the financial institution, (b) provides for the recovery of any bonus, retention award, or incentive compensation paid to specified employees based on statements of earnings, revenues, gains, or other criteria that are later found to be materially inaccurate, (c) prohibits any golden parachute payment to a senior executive officer or any of the next five most highly compensated employees, and (d) prohibits the payment or accrual of any bonus, retention award, or incentive compensation, except that any such restriction does not apply to the payment of long-term restricted stock that meets specified conditions, including a limit on value to one-third of the total amount of annual compensation of the employee receiving the stock.

 

Process for determining executive officer compensation

 

The role of the Personnel and Compensation Committee. The committee is responsible for evaluating the performance of and determining the compensation for the ceo, and, in accordance with guidelines established by the committee from time to time, approves the compensation for the senior leadership committee. The committee regularly reviews the design and structure of Citi’s compensation programs to ensure that management’s interests are aligned with stockholders and that the compensation programs are aligned with Citi’s strategic priorities.

 

In furtherance of these goals, the committee has retained icca to provide independent evaluations and advice regarding executive compensation. icca does no other work for Citi, reports directly to the chair of the committee and meets with the committee in executive session, without the presence of Citi management. icca was asked to review the committee’s process, its decisions regarding current ceo compensation and the compensation of other members of senior management, and the reasons for reaching those decisions. The committee also relies on Mercer Human Resource Consulting to provide data, evaluations and advice regarding executive compensation. The committee instructed the consultants to meet with senior management to review Citi’s process, financial performance, and market data. The consultants were asked to

 

evaluate the compensation recommendations for senior management in light of these factors and management’s description of the performance assessment. Towers Perrin also provided market data regarding compensation trends in the financial services industry.

 

Compensation process and approach for 2008. In November 2008, the committee met with senior management to review the approach to year-end compensation decisions. The proposed approach emphasized the following general principles: performance-based incentive pools, performance-based differentiation of individual compensation decisions, a mix of incentive and retention awards, and recovery or “clawback” of compensation where appropriate. The approach also emphasized partner-like behavior across the organization, to encourage behavior benefiting the franchise as a whole.

 

In December, the committee met with management to review preliminary financial data against the compensation philosophy in the determination of company-wide bonus pools and the bonus pools for senior management. In light of the extraordinary financial upheavals that occurred during 2008, market data provided limited meaningful guidance regarding contemporary compensation practices, as compensation data from 2007 and 2008 compensation surveys became an unreliable predictor of actual competitor compensation practices for 2008. The committee also reviewed and approved specific elements of the executive compensation structure, including the size of the executive bonus pools, the percentage of management executive committee compensation payable in deferred cash retention awards and performance-vesting stock and performance priced options, the “clawback” provisions and restrictions on executive severance. Their decisions also reflected the terms of the securities purchase agreement dated December 31, 2008 by and between Citi and the U.S. government (the securities purchase agreement).

 

Performance evaluations and determination of the nominal amount of the awards. In January 2009, the committee determined the size of the bonus pool for the senior leadership committee, and reduced the value of such pool by approximately 43 percent over the pool for

 

similar positions for the prior period. The amount of the reduction exceeded the reduction required by the terms of the securities purchase agreement. The committee then provided for the structure of executive compensation previously described, including an emphasis on deferred cash retention awards over currently payable cash awards and performance-vesting stock and performance priced options in lieu of traditional equity awards that vest solely according to the passage of time. The committee also made cash and equity awards subject to the “clawback,” which provides for a recovery of incentive or retention compensation that is based upon materially inaccurate performance metrics.

 

The committee awarded 40 percent of the incentive compensation in equity and 60 percent payable in cash to the named executive officers who received awards, in accordance with Citi’s longstanding approach to executive compensation. However, none of the cash payable to the named executive officers who received awards was payable at the time of the award, and all of the cash compensation was awarded in the form of a deferred cash retention award, as structuring the cash award as a deferred award (instead of an immediately payable cash award) should provide better value to stockholders to the extent that it induces a key executive to remain employed at Citi.

 

All of the equity awards made to the named executive officers who received awards as well as the awards made to the remainder of the management executive committee were made in the form of performance-vesting stock and performance priced options. The performance targets were chosen based on the conversion prices of the warrants to purchase common stock issued by Citi to the U.S. Department of the Treasury on October 28, 2008 and on December 31, 2008. The performance targets are $10.61 and $17.85 and Citi stock closed at $4.53 on the date of the awards, meaning that the stock must recover significantly for the executives to receive full value. This approach enables the alignment of executives’ interests with those of taxpayers and drives performance. The executives received 30 percent of their total incentive awards in stock and 10 percent in options, in recognition that each form of equity has a different type of value to the holder.

 

In deciding the nominal amount of each individual’s incentive, senior management presented a general review and evaluation of the executive officers to the committee. The evaluation was based on a review of the performance of each of the executive officers, including consideration of (a) Citi’s financial performance (such as revenue growth, expense management, reduction of balance sheet assets, net income, return on equity, and total return to stockholders), including both ongoing operations and recognized gains and unrecognized gains and losses, (b) the business practices, including an evaluation of risk management, (c) talent development, including development of diverse talent, and (d) the ability of the applicable business to execute on Citi’s strategic plan, including through successful acquisitions or divestitures.

 

The committee then determined the nominal amount of each executive’s compensation. Each of the factors comprising the performance results was considered by the committee in determining the nominal amount of each executive’s compensation. Formulaic approaches were not used to weight these factors, consistent with the committee’s and Citi’s belief that the adoption of any given formula could inadvertently encourage undesirable behavior (e.g., favoring one financial measure to the exclusion of other important values).

 

Four senior executives — the ceo, the cfo the former Chairman, and former senior counselor Robert E. Rubin — declined to be considered for incentive or retention compensation, in light of Citi’s performance and other extraordinary circumstances of 2008. The committee decided to make awards in either stock or cash to the named executive officers other than the ceo and cfo in varying amounts on a case-by-case basis. The awards were focused on the need to retain the applicable executive to provide for the future performance of Citi while also taking into account the executive’s past performance. This non-formulaic approach led to significant differences in the compensation paid to the named executive officers, as in making individual awards, the committee took into account the competitive marketplace for individuals with widely differing job responsibilities at Citi, length of service with Citi, size of the business for which they are

 

responsible, and tenure in the financial services industry.

 

Review by the chief risk officer. Citi’s chief risk officer held informal discussions with management from time to time throughout the process of structuring executive compensation to provide his preliminary views on how excessive risk taking could be mitigated through the company’s approach to executive compensation. On January 14, 2009, he discussed with the committee the short-term and long-term risks that could threaten the value of Citi and the features of Citi’s compensation arrangements in light of those risks, and delivered his report to the committee on his review of the compensation structure for senior executive officers. The report concluded that the design of the incentive compensation structure for Citi’s senior executive officers does not encourage those individuals to take unnecessary or excessive risks that threaten the value of the institution. The report furthermore concluded that the structure provides strong incentive for those executives to appropriately balance risk and reward, and aligns the interests of the executives with those of stockholders and the U.S. government.

 

The chief risk officer reached those conclusions through a three-part process: the risks were identified, the behaviors of the individuals who were compensated through the structure were assessed, and finally the compensation structure was evaluated in light of the risks and behaviors.

 

 

 

 

stockholders, and the interests of the U.S. government.

 

 

Independent consultant review. After the committee determined each named executive officer’s incentive and retention compensation, icca reviewed the committee’s decisions to determine whether the compensation paid to each executive was reasonable, based on the criteria described above that were used by the committee and related results. Based on its review of the total process and results, the independent consultant determined that the committee’s decision-making process was both thoughtful and thorough and its decisions were responsible and reasonable.

 

 

Significantly reduced bonus pools for senior executives. The securities purchase agreement

 

required that the bonus pool for the top 51 executives at Citi — the members of the senior leadership committee and the management executive committee (including the named executive officers) — be reduced by at least 40 percent from the amounts for the comparable prior periods. Accordingly, the bonus pool for the senior leadership committee was reduced by 43 percent from the prior period. In addition, the bonus pool for the 15 management executive committee members was reduced by 57 percent from the prior period. The structure of these awards was also significantly changed.

The committee made equity awards in 2009 and in prior years based on the grant date fair value of the awards and not on the accounting treatment of current or prior awards in Citi’s financial statements under the Statement of Financial Accounting Standards (sfas) No. 123 (revised 2004), “Share-Based Payment” (sfas 123(r)) or other applicable accounting standards. Under sec rules, the treatment in the