The Comp Commander
Paul McKinnon helped lead Citigroup through one of its most difficult periods.
By Andrew R. McIlvaine
Shortly after Paul McKinnon joined Citigroup Inc. in early 2008 as its head of human resources, he found himself helping the enormous bank withstand a global financial crisis that would take down two other major financial institutions (Bear Stearns and Lehman Brothers) and push the entire country further into a deep recession.
The crisis begat the federal government's controversial Troubled Asset Relief Program, which ultimately lent the nation's major banks more than $400 billion in taxpayer funds in order to stabilize them. Citigroup's share of the funds totaled $45 billion (that money has since been repaid, with the government earning a profit of $12.3 billion on its investment).
TARP required the banks to set limits on their executives' pay, which meant McKinnon had to devise an executive-compensation strategy that would satisfy the government without alienating the top talent the bank desperately needed to help it emerge from the crisis.
Posing a special challenge to these efforts was the fact that there were no established guidelines to follow during the process, says McKinnon.
"They couldn't say exactly what they wanted, because I'm not sure even they knew what they wanted," he says.
With the help of his capable staff (including compensation specialist Mike Murray), McKinnon put together a competitive plan that kept Citi's employees at the company while meeting the expectations of the government, as well as the bank's shareholders and board of directors.
What was the secret to his success?
No secret, he says, just lots of hard work and making sure Citi's comp committee was kept fully informed.
"You want to ensure the comp committee is completely comfortable with your approach and fully in agreement with what you're trying to do," he says.
An important lesson learned, he says, is to be firmly committed to the idea that all of the parties you're dealing with are operating in good faith.
"When you're engrossed in problem solving or negotiating, it's easy to get upset at the other groups that have an interest in the outcome," he says. "But you need to remember that these are people who are, like you, acting with the best of intentions."
Problem solving is much easier when you keep that in mind, says McKinnon.
Although the TARP compensation limits affected only 2 percent of Citi's 260,000 employees, that still equated to more than 2,000 individuals. Yet McKinnon and his team sat down with each of them to explain the pay scheme face-to-face.
"We found that people were more willing to listen one-on-one and we could address specific questions they had," he says.
McKinnon's comp-related challenges didn't end with TARP. Last year, Citi had to endure a public-relations headache after its proposed pay package for then-CEO Vikram Pandit and other top leaders received a negative say-on-pay vote from its shareholders. They had been urged to vote no by proxy advisory firms Institutional Shareholders Service and Glass-Lewis, which asserted that the pay wasn't sufficiently linked to the company's performance.
McKinnon and his team swung into action.
"We visited ISS several times to ensure we understood exactly what their concerns were," he says. "Members of my staff and the chairman went to visit the 25 biggest institutional shareholders of our stock, to understand their concerns."
After taking their concerns into account, and hiring a different compensation consultant, McKinnon presented a new exec-comp package that was more tightly linked to Citi's financial performance.
It received a 91-percent favorable vote at this year's shareholders meeting in April.
"It's one of those situations where I was quite proud of the fact that we responded so well to shareholders' concerns," he says.
In other areas, McKinnon established succession plans for the CEO and other top managers at Citigroup. This work proved critical when Pandit resigned last fall and was replaced by current CEO Mike Corbat, who previously headed one of Citi's divisions.
Additionally, McKinnon strengthened Citi's performance-management processes, which included ensuring the bank's 800 top managers receive thorough and detailed year-end assessments.
One of his most-heralded accomplishments has been creating a more integrated HR department, with common processes and centralized reporting.
"When I started here, the recent history of HR was that nothing really needed to be consistent," he says. "Every region and business had a slightly different set of policies and a slightly different brand of HR being practiced. So one thing I'm quite proud of is the degree of consistency we've developed since that time."
Prior to joining Citi, McKinnon served as senior vice president of HR at Dell Inc., helping oversee the technology company's expansion from 15,000 employees in 1999 to more than 75,000 throughout the world by 2007.
He's also spent a significant amount of time in consulting and academia, having served as a professor at the University of Virginia's Darden School of Business from 1982 to 1986.
In a letter supporting the nomination, Corbat cites McKinnon's background in academia and business as one of his greatest strengths:
"Paul brings a unique perspective to the HR function that spans the theoretical and the practical," he writes. "He has the ability to deliver tough messages, which leave the individual comfortable with the situation ... he is the exact type of individual needed as leader of an HR organization."
Paul McKinnon in Brief