How Citigroup shareholders smacked down their CEO's massive bonus

Citigroup shareholders dealt a harsh blow to CEO Vikram Pandit on Tuesday, rejecting his $15 million pay package at Citi's annual meeting in Dallas. The vote is non-binding — meaning that Citi's board of directors could ignore it — but it's still a rare slap in the face for the head of a major U.S. company, and the directors say they're going to take another look at pay for Pandit and four other senior executives. What brought about this unprecedented display of investor rancor? Here, a brief guide:

Why did shareholders revolt?

Citi's directors had agreed to sweeten their CEO's pay package with a $5.3 million cash bonus — a cool $2 million more than Goldman Sachs CEO Lloyd Blankfein got — even though the bank's shares lost 44 percent of their value in 2011. Shareholders refused. Many investors "feel the incentive compensation at Citigroup is ludicrous, that there's an artificially low hurdle," CLSA analyst Mike Mayo tells Bloomberg. "Are you going to give the manager of the New York Yankees an incentive bonus if he wins one-third of his games?"

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How does Citi plan to respond?

Technically, it doesn't have to abide by the shareholders' vote. But outgoing Citi chairman Richard Parsons says the board will still meet with shareholders and try to address their complaints. Other companies that have faced similar votes have simply slashed CEO pay. "This is a milestone for corporate America," Mayo tells The New York Times. "When shareholders speak up about issues on which they've been complacent, it's definitely a wake-up call. The only question is what took so long?"

What did take so long?

These so-called "say on pay" votes are new, required as part of the 2010 Dodd-Frank financial overhaul.

How big a problem is this for Citi, really?

No doubt about it — this is a "stinging rebuke," say Jessica Silver-Greenberg and Nelson D. Schwartz at The New York Times, marking the first time a majority of a banking giant's shareholders have put their foot down so firmly. This "warning shot" suggests that anger over CEO pay — and not just Pandit's — "has spread from Occupy Wall Street to wealthy institutional investors like pension fund and mutual fund managers." And the "smackdown" was a surprise, says David Hall at The Wall Street Journal, given that Pandit had been reaching out to shareholders and got a vote of support last year. But with lots of boards "getting tough on linking pay and performance," Pandit's whopping "payout bucked that trend a little too hard."

Sources: Bloomberg, Forbes, NY Times, Wall St. Journal