Citi Cost-Cutters Skip Offices, Staff for Ex-CEOs Prince, Reed

Feb. 17 (Bloomberg) -- Looking for Charles O. “Chuck” Prince, ousted 15 months ago as Citigroup Inc.’s chief executive officer? Just call his extension at the bank, which still pays for his office and secretary in Midtown Manhattan.

Former Citigroup investment-banking head Michael Klein also has a free office and secretary after receiving a $34.3 million exit package when he quit in July 2008. John Reed, 70, who hasn’t worked at the bank since he resigned as co-CEO in 2000 with a $5 million parting bonus, is entitled to an office and secretary for as long as he wants.

Sanford I. “Sandy” Weill, who retired as chairman in 2006, is ending a 10-year consulting contract with the bank in April after just three years. The agreement gave him millions of dollars in perks, including an office, car and driver and use of company aircraft, which he gave up in February.

Banks that took government rescue funds have been criticized by President Barack Obama, Congress and the public for lavish spending on pay and perks for top executives. Lenders continue to dole out benefits, including the longstanding practice of free offices and secretarial help, to former chiefs. Some of the recipients are blamed for abetting the financial crisis.

“The board should go to the executives and say, ‘OK, we are in a serious cost-cutting mood, and you don’t really need this office and secretary,’” said Paul Hodgson, who analyzes such perks as a senior research associate at the Corporate Library in Portland, Maine. “Or the executives themselves should pony up and say this is an expense that is unnecessary.”

Revamping Citigroup

Citigroup posted a record $18.7 billion loss last year, forcing the bank to seek a $52 billion bailout to stave off a crisis of confidence among depositors. CEO Vikram Pandit, 52, who took over from Prince in December 2007, has eliminated almost 39,000 jobs under a plan to slash costs. Last month, he canceled delivery of a corporate jet, and he told lawmakers Feb. 11 that he would cut his salary to $1 a year until his bank returns to profitability.

“I get the new reality and I will make sure Citi gets it as well,” Pandit said at the hearing before the U.S. House Financial Services Committee.

A Citigroup spokesman, Michael Hanretta, declined to comment.

It’s impossible to determine the cost of the free offices, said Alexander Cwirko-Godycki, research manager at pay consultant Equilar Inc. in Redwood Shores, California. Companies must list perks awarded to former executives when they depart, without estimating the value. Then the benefits don’t appear in annual proxy filings that detail current executives’ pay and benefits.

Merrill’s Former CEOs

“They’re completely under the radar,” Cwirko-Godycki said.

Citigroup isn’t alone in giving former executives office space, secretaries and other perks.

Merrill Lynch & Co., which had to sell itself last year to Bank of America Corp., provides an office and assistant to former CEO Stan O’Neal for the three years from his October 2007 resignation, according to a Securities and Exchange Commission filing. Merrill still maintains offices for ex-CEOs David Komansky, Daniel Tully and William Schreyer, two people familiar with the matter said.

Those costs are absorbed by Bank of America, which took $45 billion of rescue funds and $118 billion of asset guarantees.

Kennedy Thompson, ousted last year as Wachovia Corp.’s CEO, gets an office and assistant for three years, according to an SEC filing. San Francisco-based Wells Fargo & Co., which received $25 billion in bailout funds, is providing the office since buying Wachovia on Dec. 31, spokeswoman Mary Eshet said.

$267,000 a Year

“That’s a contractual item that continues after the acquisition,” Eshet said.

When JPMorgan Chase & Co. Chairman William Harrison retired in December 2006, the New York-based bank agreed to give him office space and administrative support until he turns 70 in 2013, according to a filing. The cost was estimated at $267,000 a year. That’s more than five times the U.S. Census Bureau’s estimate of the nationwide median household income in 2007. JPMorgan spokesman Tom Kelly declined to comment.

“I don’t know why these guys are not capable of paying their own freight when they leave with millions and millions of dollars,” said Graef Crystal, a former compensation consultant and author of “The Crystal Report on Executive Compensation.” “You want an office? Get one yourself.”

Prince’s Perks

Companies often say they provide offices and secretaries to outgoing executives under consulting contracts or provisions that bar them from raiding employees, said Mark Poerio, co-chair of the executive compensation practice at law firm Paul, Hastings, Janofsky & Walker LLP.

Prince, 59, retired in November 2007, as the bank’s subprime losses approached a record $9.83 billion in the fourth quarter of that year. After paying him a total of $66.8 million in the three previous years, Citigroup gave Prince a $10.4 million bonus for his last 10 months in the job, according to a filing.

He also got perks worth about $1.5 million a year, including an office, assistant, car and driver and any resulting income taxes, according to the filing. Those benefits last for five years or until he gets another full-time job, according to the filing.

Weill, 75, built Citigroup through acquisitions over 17 years, including the 1998 merger of his Travelers Group Inc. with Reed’s Citicorp. Weill and Reed shared chief executive duties for two years until Weill won a boardroom showdown in February 2000.

Retirement Planning

Reed received a $5 million parting bonus that year and a $2 million annual “retirement benefit,” according to a filing.

He also received financial-planning services for up to five years, a car and driver, an office and secretarial support “for as long as you deem useful,” according to the company. A message left at Reed’s Citigroup office was returned by an assistant, who said Reed wasn’t giving interviews.

Prince, Klein and Weill didn’t respond to messages left at their Citigroup offices.

Weill got an office and secretary under the consulting contract awarded when he retired as chairman in 2006, according to a Citigroup filing. He also received a $1 million-a-year retirement pension, consulting fees of $3,846 a day for up to 45 days a year, a car and driver, private security, financial- planning fees and medical and dental coverage.

Weill Ends Contract

The bank agreed to reimburse him for income taxes owed on the perks. He received $69 million in salary, bonus and other pay during his last three working years, according to the filing.

In August 2008, Weill told Citigroup he wanted to end the contract, less than three years into it. The benefits stop in April.

On Feb. 1, the New York Post reported Weill used a Citigroup jet in December to take a family vacation to Mexico. Later that day, Weill’s Citigroup assistant, Michael Conway, sent reporters an e-mail saying Weill decided to give up personal use of company aircraft “in light of the unprecedented circumstances that Citi finds itself in.”

Costs associated with an office “probably pale in comparison with the costs of a lot of other things you can envision,” said Stuart Alperin, a partner at Skadden, Arps, Slate, Meagher & Flom LLP, which has Citigroup as a client. Even so, “you’ll probably see a decrease in this going forward, because directors and especially compensation-committee members are likely to be sensitive to anything that looks like you’re going against the current.”

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

To contact the editor responsible for this story: Alec D.B. McCabe at amccabe@bloomberg.net