Only 45 percent of shareholders endorsed the pay plan in an advisory vote required under the Dodd-Frank law, Michael Helfer, general counsel and corporate secretary, said at Citi's annual meeting, citing preliminary vote totals.
Citigroup may have upset shareholders by increasing Pandit's pay to $14.8 million last year, similar to executive pay levels before the credit crisis struck, despite the challenges that the bank still faces. Last month, Citigroup was one of only a handful of large financial institutions that failed to win approval from regulators for a dividend increase or share buyback.
Pandit received only a symbolic $1 in 2010 and just $128,741 in 2009.
Citigroup's failed say on pay measure is also the latest signal that shareholders are turning up the pressure on top executives who have failed to deliver improved performance. Goldman Sachs Group Inc
On Monday, Citigroup posted a 2 percent decline in net income for the first quarter from a year earlier, reflecting the bank's difficulties as it works to boost profits in a sluggish global economy. Still, Citigroup shares, up more than 33 percent so far this year, closed 3.2 percent higher at $35.08 on the New York Stock Exchange.
Richard Parsons, chairman of the board, called the outcome a serious matter and said directors would meet shareholder representatives to discuss their objections.
The Citigroup vote tally surprised some analysts who follow corporate governance issues.
I would think that, given the amount of public and regulatory attention that Citigroup has had for the last four years, they would not be in a position to go to a meeting and have a negative investor vote, said Beth Young, a senior research associate for GMI Ratings in New York.
Shareholders are also expected to pressure executives of other companies at annual meetings in the coming weeks, including Janus Capital Group
Only a handful of major companies last year, including Hewlett-Packard
But the races appear to be tightening in 2012, said Deborah Lifshey, a managing director at Pearl Meyer & Partners, an executive-compensation consulting firm in New York. In addition to Citi's loss, she noted several others including at IGT and industrial products maker Actuant
In many cases, pay increases have outstripped market gains for investors, Lifshey said.
This year, people are more discontent with execs being paid when they are not being paid, she added.
For the Citigroup vote, proxy adviser ISS recommended siding against the board and voting no on the 2011 pay plan. Glass Lewis & Co, another governance advisory firm, also recommended voting against the compensation plan.
In addition to Pandit's pay increase, another area of concern to proxy advisers was the bank's 2011 retention awards, stock grants aimed at convincing executives not to jump ship, noted Todd Sirras, a partner at compensation consulting firm of Semler, Brossy, which tracks the say on pay votes.
Retention awards in the current environment tend to be viewed negatively, Sirras said.
The majority of Citigroup shares are held by institutional investors, but professional money managers were not an obvious presence at the meeting. Only a few hundred people were in the half-filled ballroom in Dallas.
The shareholders who spoke were small investors or representatives of groups promoting social causes. No representatives of major investment management firms spoke.
(Reporting by David Henry in New York and Ross Kerber in Boston; editing by Aaron Pressman, Andre Grenon and Maureen Bavdek)