30.16(a)(3) thereof, the Special Master hereby determines that the compensation
structures set forth in Exhibits I and IT, including the amounts payable or potentially
payable under such compensation structures, will not result in payments that are
inconsistent with the purposes of section 111 of EESA or the TARP, and will not
otherwise be contrary to the public interest.

Pursuant to the Interim Final Rule, Citigroup may, within 30 days of the date
hereof, request in writing that the Special Master reconsider the determinations set forth
in this Determination Memorandum. The request for reconsideration must specify a
factual error or relevant new information not previously considered, and must
demonstrate that such error or lack of information resulted in a material error in the initial
determinations. If Citigroup does not request reconsideration within 30 days, the
determinations set forth herein will be treated as final determinations. Jd. § 30.16(c)(1).

The foregoing determinations are limited to the compensation structures described
in Exhibits I and IT, and shall not be relied upon with respect to any other employee. The
determinations are limited to the authority vested in the Special Master by Section
30.16(a)(3) of the Rule, and shall not constitute, or be construed to constitute, the
judgment of the Office of the Special Master or Treasury with respect to the compliance
of any compensation structure with any other provision of the Rule. Moreover, this
Determination Memorandum has relied upon, and is qualified in its entirety by, the
accuracy of the materials submitted by the Company to the Office of the Special Master,
and the absence of any material misstatement or omission in such materials.

Finally, the foregoing determinations are limited to the compensation structures
described herein, and no further compensation of any kind payable to any Covered
Employee without the prior approval of the Special Master would be consistent with the
Public Interest Standard.

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exceeding this limitation have already been made to a Covered Employee in 2009, those
amounts should be promptly returned to the Company.*

e. Supplemental Executive Retirement Plans and Non-Qualified Deferred
Compensation

Citigroup also proposed that certain Covered Employees receive limited
compensation in the form of accruals under a “non-qualified deferred compensation”
plan. In such plans, employers periodically credit employees with an entitlement to post-
retirement payments. Over time, these credits accumulate and employees may become
entitled to substantial cash guarantees payable on retirement—in addition to any
payments provided under retirement plans maintained for employees generally.

The Special Master has concluded that the primary portion of a Covered
Employee’s compensation package should be allocated to compensation structures that
are “performance-based over a relevant performance period.” /d. § 30.16(b)(1)(iv).
Payments under the Company’s “non-qualified deferred compensation” plans do not
depend upon “individual performance and/or the performance of the [Company] or a
relevant business unit,” id.; instead, such accruals are simply guaranteed cash payments
from the Company in the future. In addition, these payments can make it more difficult
for shareholders to readily ascertain the full amount of pay due a top employee upon
leaving the Company.

Covered Employees should fund their retirements using wealth accumulated
based on Company performance while they are employed, rather than being guaranteed
substantial retirement benefits by the Company regardless of Company performance
during and after their tenures. Accordingly, as described in Exhibits I and I, the
compensation structures the Special Master has determined to be consistent with the
Public Interest Standard prohibit further 2009 accruals for Covered Employees under
supplemental retirement plans or Company credits to other “non-qualified deferred
compensation” plans following the date of this Determination Memorandum.

f. Severance Plans

The Special Master has concluded that an increase in the amounts payable under
these arrangements would be inconsistent with the principle that compensation should be
performance-based, id. § 30.16(b)(1)(iv), and that payments should be appropriately
allocated among the elements of compensation, id. § 30.16(b)(1)(iii). Accordingly, for
the compensation structures described in Exhibits I and I to be consistent with the
Public Interest Standard, the Company must ensure that 2009 compensation structures for
these employees do not result in an increase in the amounts payable pursuant to these
arrangements.

1 Citigroup has, however, identified four employees subject to expatriate arrangements providing for the
payment of certain “other” compensation in excess of this limitation. The Special Master has reviewed
these arrangements and has concluded that such payments, not to exceed $350,000 per employee, are
consistent with the Public Interest Standard.

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ANNEX A
DETERMINATION MEMORANDUM

I. INTRODUCTION

The Emergency Economic Stabilization Act of 2008, as amended by the
American Recovery and Reinvestment Act of 2009 (“EESA”), requires the Secretary of
the Treasury to establish standards related to executive compensation and corporate
governance for financial institutions receiving financial assistance under the Troubled
Asset Relief Program (“TARP”). Through the Department of the Treasury’s Interim
Final Rule on TARP Standards for Compensation and Corporate Governance (the
“Rule”), the Secretary delegated to the Office of the Special Master for TARP Executive
Compensation (the “Office of the Special Master” or, the “Office”) responsibility for
reviewing compensation structures of certain employees at financial institutions that
received exceptional financial assistance under the TARP (“Exceptional Assistance
Recipients”), 31 C.F.R. § 30.16(a); id. § 30.16(a)(3). For these employees, the Special
Master must determine whether the compensation structure will or may result in
payments “inconsistent with the purposes of section 111 of EESA or TARP, or [is]
otherwise contrary to the public interest.” Id.

Citigroup Inc. (“Citigroup,” or the “Company”), one of seven Exceptional
Assistance Recipients, has submitted to the Special Master proposed compensation
structures for review pursuant to Section 30.16(a)(3) of the Rule. These compensation
structures apply to three employees that the Company has identified as senior executive
officers (the “Senior Executive Officers,” or “SEOs”) for purposes of the Rule, and
eighteen employees the Company has identified as among the most highly compensated
employees of the Company for purposes of the Rule (the “Most Highly Compensated
Employees,” and, together with the SEOs, the “Covered Employees”).

The Special Master has completed the review of the Company’s proposed
compensation structures for the Covered Employees pursuant to the principles set forth in
the Rule. § 30.16(b)(1). This Determination Memorandum sets forth the determinations
of the Special Master, pursuant to Section 30.16(a)(3) of the Rule, with respect to the
Covered Employees.

Il. BACKGROUND

On June 15, 2009, the Department of the Treasury (“Treasury”) promulgated the
Rule, creating the Office of the Special Master and delineating its responsibilities.
Immediately following that date, the Special Master, and Treasury employees working in
the Office of the Special Master, conducted extensive discussions with Citigroup
officials. During these discussions, the Office of the Special Master informed Citigroup
about the nature of the Office’s work and the authority of the Special Master under the
Rule. These discussions continued for a period of months, during which the Special
Master and Citigroup explored potential compensation structures for the Covered
Employees.

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EXHIBITI
COVERED EMPLOYEES

2009 Compensation

Company Name: Citigroup Inc.

Stock Salary

(Performance based: | Long-Term Restricted Stock Total Direct
The stock vests at grant | (Performance based: Awarded | Compensation
and is redeemable in based on achievement of (Cash salary paid to
three equal, annual objective performance goals. date plus (wo months at
Cash Salary _| installments beginning on | Vests after 3 years of service. | new run rate + stock
(Rate going | the 2nd anniversary of | Transferability dependent on salary + long-term
Employee ID forward.) grant.) TARP repayment.) restricted stock.)
100001 SL 0 $0 st
100004 $475,000 $5,433,333 $2,850,000 $8.550,000
100005 $500,000. $3.400,000 $1,950,000 $5,850,000
100006 $0 SO 80 $0,
100007 $475,000 $5,629,167 $3,000,000 $9,000,000
100008 $475,000 $3,733,333 $2,000,000 $6,000,000
190009 $475,000. $3,979,167 $2,133,333 $6,400,000,
$o0010 $475,000 $5,699,390 $3,000,000 $9,000,000
fo001t $475.00 $4,683,333, $2,475,000
100013 $475,000 $5.399,390

toool4 $475,000 BS 3 $9,000,000
100015 $475.000 $4,400,000 $7,000,000
100017 $475,000, $3.200,000 SLT3. $5,200,000
{00019 $475,000 $3,000,000 $1,633.333 $4,900,000
100020 $475.00 $2,845,833 $1,556,250 $4.668.750
1o0021 $475,000, $1,775,000 $1,000,000 $3,000,000
100022 $475,000 $2,520,000 $1,393.333 $4,180,000
100023 $475,000, $2,000,000 $6,000,000
100025 $475,000 $237,500 $712,500
100075 $500,000 062,500 $2,666,667 $8,000,000
100107 $2,916.666, $1.666,067 $5,000,000.
Comparison of 2009 Compensation to Prior Years: 2007 & 2008 Compensation
2008 Cash decreased by $244.9M or 96.4%
Total Direct Compensation decreased by $272M or 69.7%
2007 Cash decreased by $78.4M or 89.6%
Total Direct Compensation decreased by $217.3M or 64.7%
Note: |: Amounts reflected in this Exhibit do not include amounts the Company has asserted to be payable pursuant to legally

binding rights under valid employment contracts, see 31 C.P.R. § 30.10(€)(2).
Note: 2: The total number of Covered Employees may be less than 25 because of terminations, departures and retirements
after January 1, 2009.

El



Master. This evaluation must be disclosed to shareholders in, and certified by the
Committee as part of, Citigroup’s securities filings. In addition, the Committee must
retain discretion with respect to each employee, to reduce (but not to increase) the
amount of any incentive award on the basis of its overall evaluation of the employee’s or
Citigroup's performance (notwithstanding full or partial satisfaction of the performance
criteria).

In addition, as noted in Part III, above and described in Exhibits I and IT, the
structures determined by the Special Master to be consistent with the Public Interest
Standard include grants of stock in Citigroup. It is critical that these compensation
structures achieve the Rule’s objective of “appropriate[ly] allocat[ing] the components of
compensation [including] long-term incentives, as well as the extent to which
compensation is provided in...equity,” id. § 30.16(b)(iii).

The Company must have in effect a policy that would prohibit an employee from
engaging in hedging, derivative or other transactions that have an economically similar
effect that would undermine the incentives created by the compensation structures set
forth in Exhibits I and IT. Such transactions would be contrary to the principles set forth
in the Rule.

B. Additional Requirements

In addition to the requirements set forth above, pursuant to the requirements of the
Rule, Citigroup is required to institute the following corporate governance reforms:

(1) Compensation Committee; Risk Review. Citigroup must maintain a compensation
committee comprised exclusively of independent directors. Every six months, the
committee must discuss, evaluate, and review with Citigroup’s senior risk officers
any risks that could threaten the value of Citigroup. In particular, the committee
must meet every six months to discuss, evaluate, and review the terms of each
employee compensation plan to identify and limit the features in (1) SEO
compensation plans that could lead SEOs to take unnecessary and excessive risks
that threaten the value of Citigroup; (2) SEO or other employee compensation.
plans that could encourage behavior focused on short-term results and not on
long-term value creation; and (3) employees’ compensation plans that could
encourage the manipulation of Citigroup’s reported earnings to enhance the
compensation of any of the employees. Jd. § 30.4; id. § 30.5.

(2) Disclosure with Respect to Compensation Consultants, The compensation
committee must disclose to Treasury an annual narrative description of whether
Citigroup, its Board of Directors, or the committee has engaged a compensation
consultant during the past three years. If so, the compensation committee must
detail the types of services provided by the compensation consultant or any
affiliate, including any “benchmarking” or comparisons employed to identify
certain percentile levels of compensation. /d. § 30.11(c).

Al4


second anniversary of the grant date. Citigroup proposed to deliver annualized amounts
ranging from $2,311,667 to $5,525,000 to employees in this group.

c. Annual Long-Term Incentive Awards

Citigroup proposed that employees in this group be eligible, in the discretion of
the Company, for grants of substantial incentive awards with total value ranging from
under $1,393,333 to $3,000,000. Citigroup proposed that the awards be payable in the
form of restricted Citigroup stock that vested if the employee remained employed by
Citigroup on the second anniversary of the grant date.

d. “Other” Compensation and Perquisites

Citigroup proposed payments of “other” compensation, as well as perquisites, to
the employees in this group. These proposed payments varied in value.

e. Supplemental Executive Retirement Plans and Non-Qualified Deferred
Compensation

Citigroup proposed that certain employees in this group receive compensation in
the form of accruals under a “non-qualified deferred compensation” plan.

f. Severance Plans

Citigroup’s submission to the Office of the Special Master indicated that the
Proposed Structures would, in some cases, result in increases in amounts payable to these
employees pursuant to severance arrangements. These arrangements generally provide
for amounts payable upon termination of employment, including termination in light of
the employee’s performance.

2. Covered Employees Party to Certain Agreements
(Citigroup’s CDMI & Investment and Advisory Subsidiaries)

Citigroup has also proposed compensation structures for six Covered Employees
who are party to written employment agreements with Citigroup. Citigroup argued that
the agreements provided for legally binding rights under valid employment contracts, see
31 CFR. § 30.10(e)(2). Under the Rule, amounts payable pursuant to such agreements
are generally not subject to the review of the Special Master, although such amounts may
be taken into account by the Special Master in connection with determinations with
respect to prospective compensation payable to the employee, id. § 30.16(a)(3)(i).

Citigroup’s proposed compensation structure for each of the six employees in this
group emphasized the payment of small cash salaries accompanied by large cash
payments reflecting the terms of the existing agreements.

‘ Three of the Covered Employees are employed by Citigroup’s CDMI subsidiary. The remaining three
employees serve as the senior employees of Citigroup investment and advisory subsidiaries.

A6


¢ Consultation with Lucian A. Bebchuk, a world-renowned expert in executive
compensation and the William J. Friedman and Alicia Townsend Friedman
Professor of Law, Economics, and Finance and Director of the Program on
Corporate Governance at Harvard Law School; and

¢ Consultation with Kevin J. Murphy, a world-renowned expert in executive
compensation and the Kenneth L. Trefftzs Chair in Finance in the department of
finance and business economics at the University of Southern California’s
Marshall School of Business

The Special Master considered these views, in light of the statutory and regulatory
standards described in Part III below, when evaluating the Company’s proposed
compensation structures for the Covered Employees for 2009.

III. STATUTORY AND REGULATORY STANDARDS

The Rule requires that the Special Master determine for each of the Covered
Employees whether Citigroup’s proposed compensation structure, including amounts
payable or potentially payable under the compensation structure, “will or may result in
payments that are inconsistent with the purposes of section 111 of EESA or TARP, or [is]
otherwise contrary to the public interest.” 31 C.F.R. § 30.16(a)(3) (as applied to Covered
Employees of Exceptional Assistance Recipients, the “Public Interest Standard”).
Regulations promulgated pursuant to the Rule require that the Special Master consider six
principles when making these compensation determinations:

(1) Risk. The compensation structure should avoid incentives that encourage
employees to take unnecessary or excessive risks that could threaten the value of
the Exceptional Assistance Recipient, including incentives that reward employees
for short-term or temporary increases in value or performance; or similar
measures that may undercut the long-term value of the Exceptional Assistance
Recipient. Compensation packages should be aligned with sound risk
management. /d. § 30.16(b)(1)(i).

(2) Taxpayer return. The compensation structure and amount payable should reflect
the need for the Exceptional Assistance Recipient to remain a competitive
enterprise, to retain and recruit talented employees who will contribute to the
recipient’s future success, so that the Company will ultimately be able to repay its
TARP obligations. /d. § 30.16(b)(1)(ii).

(3) Appropriate allocation. The compensation structure should appropriately allocate
the components of compensation such as salary and short-term and long-term
performance incentives, as well as the extent to which compensation is provided
in cash, equity, or other types of compensation such as executive pensions, or
other benefits, or perquisites, based on the specific role of the employee and other
relevant circumstances, including the nature and amount of current compensation,



The Rule requires that each Exceptional Assistance Recipient submit proposed
compensation structures for each Senior Executive Officer and Most Highly
Compensated Employee no later than August 14, 2009. 31 C.F.R. § 30.16(a)(3). On July
20, 2009, the Special Master requested from each Exceptional Assistance Recipient,
including Citigroup, certain data and documentary information necessary to facilitate the
Special Master’s review of the Company’s compensation structures. The request
required Citigroup to submit data describing its proposed compensation structures, and
the payments that would result from the proposals, concerning each Covered Employee.

In addition, the Rule authorizes the Special Master to request information from an
Exceptional Assistance Recipient “under such procedures as the Special Master may
determine.” Id. § 30.16(d). Citigroup was required to submit competitive market data
indicating how the amounts payable under Citigroup’s proposed compensation structures
relate to the amounts paid to persons in similar positions or roles at similar entities.
Citigroup was also required to submit a range of documentation, including information
related to proposed performance metrics, internal policies designed to curb excessive
risk, and certain previously existing compensation plans and agreements.

Citigroup submitted this information to the Office of the Special Master on
August 14, 2009. Following a preliminary review of the submission, and the submission
of certain additional information, on August 31, 2009, the Special Master determined that
Citigroup’s submission was substantially complete for purposes of the Rule. Id.

§ 30.16(a)(3). The Office of the Special Master then commenced a formal review of
Citigroup’s proposed compensation structures for the Covered Employees. The Rule
provides that the Special Master is required to issue a compensation determination within
60 days of a substantially complete submission. Id.

The Office of the Special Master’s review of the Company’s proposals was aided
by analysis from a number of internal and external sources, including:

« Treasury personnel detailed to the Office of the Special Master, including
executive compensation specialists with significant experience in reviewing,
analyzing, designing and administering executive compensation plans, and
attorneys with experience in matters related to executive compensation;

* Competitive market data provided by the Company in connection with its
submission to the Office of the Special Master;

e External information on comparable compensation structures extracted from the
U.S. Mercer Benchmark Database-Executive;

e External information on comparable compensation structures extracted from
Equilar’s Executivelnsight database (which includes information drawn from
publicly filed proxy statements) and Equilar’s Top 25 Survey Summary Report
(which includes information from a survey on the pay of highly compensated
employees);


(3) Disclosure of Perquisites. As noted in Part IV, Citigroup must provide to
Treasury an annual disclosure of any perquisite whose total value for Citigroup’s
fiscal year exceeds $25,000 for each of the Covered Employees. Citigroup must
provide a narrative description of the amount and nature of these perquisites, the
recipient of these perquisites, and a justification for offering these perquisites
(including a justification for offering the perquisite, and not only for offering the
perquisite with a value that exceeds $25,000). Id. § 30.11(b).

(4) Clawback. Citigroup must ensure that any incentive award paid to a Covered
Employee is subject to a clawback if the award was based on materially
inaccurate financial statements (which includes, but is not limited to, statements
of earnings, revenues, or gains) or any other materially inaccurate performance
metric criteria. Citigroup must exercise its clawback rights except to the extent
that it is unreasonable to do so. Id. § 30.8.

(5) Say-on-Pay. Citigroup must permit a separate shareholder vote to approve the
compensation of executives, as required to be disclosed pursuant to the federal
securities laws (including the compensation discussion and analysis, the
compensation tables, and any related material). Id. § 30.13.

cessive or Luxury Expenditures. Citigroup was required to
ssive or luxury expenditures policy, provide that policy to Treasury,
and post it on Citigroup’s website. If Citigroup’s board of directors makes any
material amendments to this policy, within ninety days of the adoption of the
amended policy, the board of directors must provide the amended policy to
Treasury and post the amended policy on the company website. /d. § 30.12.

(7) Prohibition on Tax Gross-Ups. Except as explicitly permitted under the Rule,
Citigroup is prohibited from providing (formally or informally) tax gross-ups to
any of the Covered Employees. Id. § 30.11(d).

(8) CEO and CFO Certification. Citigroup’s chief executive officer and chief
financial officer must provide to the Securities and Exchange Commission written
certification of the Company’s compliance with the various requirements of
section 111 of EESA. The precise nature of the required certification is identified
in the Rule. /d. § 30.15 Appx. A.

VI. CONCLUSION

The Special Master has reviewed the Proposed Structures for the Covered
Employees for 2009 in light of the principles set forth at 31 C.F.R. § 30.16(b). On the
basis of that review, the Special Master has determined that the Proposed Structures
submitted by Citigroup require modification in order to meet the Public Interest Standard.

The Special Master has separately reviewed the compensation structures set forth

in Exhibits I and IT in light of the principles set forth at 31 C.F.R. § 30.16(b). Pursuant
to the authority vested in the Special Master by the Rule, and in accordance with Section

AIS


TV. COMPENSATION STRUCTURES AND PAYMENTS

A. group Propo:

Citigroup has provided the Office of the Special Master with detailed information
concerning its proposed 2009 compensation structures for the Covered Employees,
including amounts proposed to be paid under the compensation structure for each
Covered Employee (the “Proposed Structures”).

Citigroup supported its proposal with detailed assessments of each Covered
Employee’s tenure and responsibilities at the Company (or its applicable subsidiary) and
historical compensation structure. The submission also included market data that,
according to the Company, indicated that the amounts potentially payable to each
employee were comparable to the compensation payable to persons in similar positions or
roles at a “peer group” of entities selected by the Company.

1. Citigroup Corporate and Operating Units

Citigroup has proposed compensation structures for each of two Senior Executive
Officers,' as well as for 11 Most Highly Compensated Employees, each of whom serves
as an executive in Citigroup’s corporate offices or as a senior executive of a Citigroup
subsidiary.”

a. Cash Salary

With the exception of the Chief Executive Officer, who has agreed to continue
receiving an annual base salary of $1 during 2009, Citigroup generally proposed to
increase cash salaries for employees in this group. The proposed increases included cash
base salaries as high as $800,000 per year. Citigroup’s submission to the Office of the
Special Master asserted that base salaries at this level could be justified by reference to
the compensation of comparable employees at comparable financial institutions.

b. Stock Salary

Citigroup proposed that employees in this group receive substantial compensation
in the form of vested Citigroup stock delivered on the Company’s payroll schedule.
Citigroup proposed that one-third of the stock be transferable upon grant; one-third be
transferable on the first anniversary of the grant date; and one-third be transferable on the

' Citigroup had three Chief Financial Officers during 2009, Because “an individual who served as the
[CFO] of a TARP recipient...is a SEO for purposes of that fiscal year.” each of these three individuals is
included in Citigroup's Covered Employees during 2009. See Frequently Asked Questions, Troubled Asset
Relief Program Standards for Compensation and Corporate Governance, FAQ #4. available at

http://www. finan tability.gov/docs/IFrFAQsPartl.pdf.

* Compensation for Covered Employees at two specific Citigroup subsidiaries, Citigroup Derivatives
Markets, Inc. (*CDMI”) and Phibro LLC, are addressed in further detail in Parts 1V.A.2. and [V.A.3.


DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

October 22, 2009

Mr. Michael S. Helfer, Esquire
General Counsel &

Corporate Secretary

Citigroup Inc.

399 Park Avenue

New York, NY 10022

Re: — Proposed Compensation Payments and
Structures for Senior Executive Officers and
Most Highly Compensated Employees

Dear Mr. Helfer:

Pursuant to the Department of the Treasury’s Interim Final Rule on TARP
Standards for Compensation and Corporate Governance, the Office of the Special Master
has completed its review of your 2009 compensation submission on behalf of the senior
executive officers and certain most highly compensated employees of Citigroup Inc.
(“Citigroup”). Attached as Annex A is a Determination Memorandum (accompanied by
Exhibits I and ID providing the determinations of the Special Master with respect to
2009 compensation for those employees. 31 C.F.R. § 30.16(a)(3).

Pursuant to the Interim Final Rule, the Special Master is required to determine
whether the compensation structure for each senior executive officer and certain most
highly compensated employees “will or may result in payments inconsistent with the
purposes of section 111 of EESA or TARP, or [is] otherwise contrary to the public
interest.” Id. § 30.16(a)(3). The Special Master has determined that, to satisfy this
standard, 2009 compensation for Citigroup's senior executive officers and certain most
highly compensated employees generally must comport with the following important
standards:

¢ There can be no guarantee of any “bonus” or “retention” awards among the
compensation structures approved by the Special Master. Cash guarantees
payable in 2009 pursuant to previously existing agreements must be restructured
to be payable in stock awards that may only be liquidated over time. In
Citigroup’s case, this will require the restructuring of several agreements between
Citigroup and its employees, and the deferral of payments to certain employees of
Phibro, LLC until such time as Phibro is no longer a subsidiary of Citigroup.


has concluded that the proposed cash salaries are inconsistent with the Public Interest
Standard because the amounts potentially payable to certain Covered Employees cannot
be supported by comparison to cash salaries provided to persons in similar positions or
roles at similar entities.

Accordingly, the Special Master has determined that Citigroup’s proposed cash
salaries for these employees are inconsistent with the Public Interest Standard. As
scribed in further detail in Exhibits I and II, the cash salaries for these employees that
the Special Master has determined to be consistent with the Public Interest Standard are
comparable to those amounts for persons in similar positions or roles at similar entities,
and are generally less than $500,000.

b. Stock Salary

First, the Special Master reviewed the amounts of compensation to be granted in
the form of stock salary in light of the principle that compensation structures should
generally be comparable to “compensation structures and amounts for persons in similar
positions or roles at similar entities.” /d. § 30.16(b)(1)(v).. The Special Master has
concluded that the proposed amounts to be delivered in stock salary are inconsistent with
the Public Interest Standard because the amounts potentially payable to certain Covered
Employees cannot be supported by comparison to the compensation payable to persons in
similar positions or roles at similar entities. The Special Master has concluded that lesser
amounts payable in the form of stock salary are consistent with the Public Interest
Standard. These amounts are described in further detail in Exhibits I and IT.

Second, the Special Master reviewed the structure of Citigroup’s stock salary
proposal in light of the principle that compensation structures should align performance
incentives with long-term value creation rather than short-term profits. See id.

§ 30.16(b)(1)(i). The Special Master has concluded that Citigroup’s proposal, which
contemplates that one third of stock salary will be transferable immediately by the
employee, does not provide sufficient alignment with long-term value creation.

The Special Master also reviewed the structure of Citigroup’s stock salary
proposal in light of the principle that an appropriate portion of compensation should be
“performance-based over a relevant performance period,” id. § 30.16(b)(1)(iv). Stock
that is immediately transferable permits an employee to liquidate his or her investment in
the stock immediately rather than over a period designed to reflect performance.
Accordingly, the Special Master has determined that the structure of Citigroup’s stock
salary proposal is inconsistent with the Public Interest Standard.

Accordingly, the compensation structures the Special Master has determined to be
consistent with the Public Interest Standard would not permit immediate transferability or
sale of stock salary. Instead, stock salary may only be redeemable in three equal, annual
installments beginning on the second anniversary of grant, with each installment
redeemable one year early if Citigroup repays its TARP obligations.

A8&


3. Covered Employees at Phibro, LLC

Citigroup has also proposed compensation structures for two Covered Employees
employed by Phibro, LLC, a subsidiary engaged in commodities trading. In connection
with the submission of its proposed compensation structures for these employees,
Citigroup provided the Office of the Special Master with a detailed description of the
historical compensation practices at this subsidiary. Generally, these practices called for
Phibro to establish cash “bonus pools” in amounts based upon Phibro’s annual trading
profits, and for these pools to be allocated in the discretion of Phibro’s Chief Executive
Officer.

Each of the two Covered Employees employed by Phibro has historically
participated in these bonus pools. As noted above, Citigroup argued that the employees’
participation in these bonus pools reflected legally binding rights under valid
employment contracts, see id. § 30.10(e)(2), and thus were not subject to the review of
the Special Master. Accordingly, Citigroup’s proposed compensation structure for each
of these two employees emphasized the payment of small cash salaries accompanied by
large cash payments from Phibro’s bonus pools.

B. Determinations of the Special Master

The Special Master has reviewed the Proposed Structures in detail by application
of the principles set forth in the Rule and described in Part III above. In light of this
review and analysis, the Special Master has determined that both the structural design of
Citigroup’s proposals and the amounts potentially payable to Covered Employees under
the proposals would be inconsistent with the Public Interest Standard and, therefore,
require modification.

The Special Master has determined, in light of the considerations that follow, that
the compensation structures described in Exhibits I and IT to this Determination
Memorandum will not, by virtue of either their structural design or the amounts
potentially payable under them, result in payments inconsistent with the Public Interest
Standard.

1. Citigroup Corporate and Operating Units

a. Cash Salary

The Special Master reviewed Citigroup’s proposal with respect to cash salary in
light of the principle that compensation structures should generally be comparable to
“compensation structures and amounts for persons in similar positions or roles at similar
entities,” id. § 30.16(b)(1)(v). The Special Master has concluded generally that, for
Covered Employees at Exceptional Assistance Recipients, cash salaries should generally
target the 50th percentile because such levels of cash salaries balance the need to attract
and retain talented with the need for compensation structures that reflect the
circumstances of Exceptional Assistance Recipients. Citigroup proposed annual cash
salaries in excess of $800,000 for the three employees in this group. The Special Master

AT


deferred compensation, or other compensation and benefits previously paid or
awarded. Id. § 30.16(b)(1)(iii).

(4) Performance-based compensation. An appropriate portion of the compensation
should be performance-based over a relevant performance period. Performance-
based compensation should be determined through tailored metrics that
encompass individual performance and/or the performance of the Exceptional
Assistance Recipient or a relevant business unit taking into consideration specific
business objectives. Performance metrics may relate to employee compliance
with relevant corporate policies. In addition, the likelihood of meeting the
performance metrics should not be so great that the arrangement fails to provide
an adequate incentive for the employee to perform, and performance metrics
should be measurable, enforceable, and actually enforced if not met. Id. §
30.16(b)(1)(iv).

(5) Comparable structures and payments. The compensation structure, and amounts
payable where applicable, should be consistent with, and not excessive taking into
account, compensation structures and amounts for persons in similar positions or
roles at similar entities that are similarly situated, including, as applicable, entities
competing in the same markets and similarly situated entities that are financially
distressed or that are contemplating or undergoing reorganization. Id. §
30.16(b)(1)(v).

(6) Employee contribution to TARP recipient value. The compensation structure and
amount payable should reflect the current or prospective contributions of an
employee to the value of the Exceptional Assistance Recipient, taking into
account multiple factors such as revenue production, specific expertise,
compliance with company policy and regulation (including risk management),
and corporate leadership, as well as the role the employee may have had with
respect to any change in the financial health or competitive position of the
recipient. Id. § 30.16(b)(1)(vi).

The Rule provides that the Special Master shall have discretion to determine the
appropriate weight or relevance of a particular principle depending on the facts and
circumstances surrounding the compensation structure or payment for a particular
employee. /d. § 30.16(b). To the extent two or more principles may appear inconsistent
in a particular situation, the Rule requires that the Special Master exercise his discretion
in determining the relative weight to be accorded to each principle. Id.

The Rule provides that the Special Master may, in the course of applying these
principles, take into account other compensation structures and other compensation
earned, accrued, or paid, including compensation and compensation structures that are
not subject to the restrictions of section 111 of EESA. For example, the Special Master
may consider payments obligated to be made by the Company pursuant to certain legally
binding rights under valid written employment contracts entered into prior to enactment
of the statute and the accompanying Rule. /d. § 30.16(a)(3).

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EXHIBIT I
TERMS AND CONDITIONS OF PAYMENTS AND STRUCTURES
CONSISTENT WITH THE PUBLIC INTEREST STANDARD

The following general terms and conditions shall govern the compensation
structures described in Exhibit I. The Special Master's determination that those
structures are consistent with the Public Interest Standard is qualified in its entirety by the
Company’s adherence to these terms and conditions.

© Cash base salary. Cash base salaries reflect the go-forward rate for the employee
effective as of November 1, 2009. Compensation paid in the form of cash base
salary prior to that date in accordance with the terms of employment as of June
14, 2009 shall be permitted unless otherwise noted. 31 C.F.R. § 30.16(a)(3)(iii).

© Stock salary. Rates of stock salary grants reflect full-year values. Because this is
a new compensation element, the amounts are payable on a nunc pro tunc basis
effective January 1, 2009. Stock salary must be determined as a dollar amount
through the date salary is earned, be accrued at the same time or times as the
salary would otherwise be paid in cash, and vest immediately upon grant, with the
number of shares based on the fair market value on the date of award. Stock
granted as stock salary may only be redeemed in three equal, annual installments
beginning on the second anniversary of grant, with each installment redeemable
one year early if TARP obligations are repaid.

© Long-term restricted stock. Long-term restricted stock may be granted upon the
achievement of specified, objective performance criteria that have been developed
and reviewed in consultation with the Office of the Special Master and certified
by the Personnel and Compensation Committee of Citigroup's Board of Directors.
Any such stock may vest only if the employee remains employed by the Company
on the third anniversary of grant (or, if earlier, upon death or disability). The
stock shall be transferable only in 25% increments for each 25% of TARP
obligations repaid by the Company.

© Other compensation and perquisites. No more than $25,000 in total other
compensation and perquisites may be provided to any Covered Employee, absent
exceptional circumstances for good cause shown, as defined by pertinent SEC
regulations.

© Supplemental executive retirement plans and non-qualified deferred
compensation plans. Following the date of the Determination Memorandum, no
additional amounts may be accrued under supplemental executive retirement
plans, and no Company contributions may be made to other “non-qualified
deferred compensation” plans, as defined by pertinent SEC regulations.

¢ Qualified Plans. For the avoidance of doubt, the Special Master has determined

that participation by the Covered Employees in tax-qualified retirement, health
and welfare, and similar plans is consistent with the Public Interest Standard.

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© Taxpayer return. The compensation structures approved by the Special Master
reflect the need for Citigroup to remain a competitive enterprise and, ultimately,
to be able to repay TARP obligations. The Special Master has determined that
these approved compensation structures are competitive when compared with
persons in similar positions or roles at similar entities. Overall, the compensation
structures provide for total compensation packages that generally target the 50th
percentile when compared to such other executive officers and employees. Id.
§ 30.16(b)(1)(ii).

© = Appropriate allocation. The total compensation payable to Citigroup employees
is weighted heavily toward long-term structures that are tied to Citigroup’s
performance and are easily understood by shareholders. As a general principle,
guaranteed income is rejected. Fixed compensation payable to Citigroup
employees should consist only of cash salaries at sufficient levels to attract and
retain employees and provide them a reasonable level of liquidity.

Pursuant to the Interim Final Rule, Citigroup may, within 30 days of the date
hereof, request in writing that the Special Master reconsider the determinations set forth
in Annex A. If Citigroup does not request reconsideration within 30 days, these initial
determinations will be treated as final determinations. Jd. § 30.16(c)(1).

Very JryW yours,

Kenneth R. wk
Office of the Special Master
for TARP Executive Compensation

Attachments

ce: Lewis B. Kaden, Esquire
Mr. Paul McKinnon


2. Covered Employees Party to Certain Agreements
(Citigroup's CDMI & Investment and Advisory Subsidiaries)

The Special Master reviewed Citigroup’s proposed compensation structures for
these employees in light of the principle that compensation structures should be
“performance-based over a relevant performance period,” id. § 30.16(b)(1)(iv).
Citigroup’s proposals for these employees generally provided for the payment of
substantial guaranteed minimum cash amounts. The Special Master has concluded that
the proposal is inconsistent with the Public Interest Standard because the payment of a
large cash lump sum is not adequately linked to the performance of the Company over a
relevant performance period.

The Special Master also reviewed the proposals in light of the requirement that
compensation structures “avoid incentives to take unnecessary or excessive risks,” id.
§30.16(b)(1)().. A guaranteed minimum amount provides the employee with little
downside risk in the event of poor performance, but potentially unlimited gain in the
event that substantial risk-taking leads to significant profits. Accordingly, the Special
Master has concluded that the proposal is inconsistent with the Public Interest Standard
because the presence of a guaranteed minimum amount may lead to incentives to take
unnecessary or excessive risks.

During discussions with the Company, the Office of the Special Master conveyed
the view that the proposals were inconsistent with the Public Interest Standard. Citigroup
asserted that these payments were to be made under agreements providing for legally
binding rights under valid written employment contracts, see id. § 30.10(e)(2). Following
extensive discussions, all six of the employees in this group agreed to waive their rights
to the cash payments reflected in the Company’s proposals.

Accordingly, these payments will be restructured to be consistent with the Public
Interest Standard and will include the following:

e Cash base salaries no greater than $475,000.

© Grants of vested stock salary redeemable only in three equal, annual installments
beginning on the second anniversary of grant, with each installment redeemable
one year early if Citigroup repays its TARP obligations.

¢ Subject to the achievement of objective, specified performance metrics developed
in consultation with the Office of the Special Master, an annual long-term
incentive award, granted in the form of Citigroup restricted stock that will be
forfeited unless the employee stays with Citigroup for at least three years
following grant, and may only be redeemed in 25% installments for each 25% of
Citigroup's TARP obligations that are repaid. 5

* Stock granted pursuant to such awe
terminated by Citigroup without “cat

if any. for these three employees may vest if the employee is
ise” prior to the third anniversary of the grant date.

All


Interest Standard, that employee’s compensation structure must provide for no
compensation of any kind during 2009. Accordingly, amounts paid to the employee prior
to the date of this Determination Memorandum shall be repaid to Citigroup.

The second Covered Employee at Phibro was determined not to have a legally
binding right to the proposed amounts. See id. § 30.10(e)(2). Accordingly, the Office of
the Special Master engaged in discussions with the Company to ensure that no payments
would be made to this employee that would be inconsistent with the Public Interest
Standard. The compensation structures for this employee that the Special Master has
determined to be consistent with the Public Interest Standard will be structured in
accordance with the conclusions of the Special Master described in Part [V.B.2. above.
The compensation structures for this employee will also be subject to the limitations
described in Parts IV.B.2.d., (“other” compensation and perquisites), [V.B.2.e. (non-
qualified deferred compensation), and IV.B.2.f. (severance plans) above. Further detail is
provided in Exhibits I and I.

4. Departed Employees

In addition, three employees that would have been Covered Employees had they
remained employed are no longer employed by the Company. With respect to those
employees, the Special Master has determined that cash salaries through the date of the
termination of employment, and payment of up to $25,000 in perquisites and “other”
compensation are consistent with the Public Interest Standard. No other payments to
these employees of any kind would be consistent with the Public Interest Standard. Any
exceptions to this limitation will require that the Company provide to the Office of the
Special Master an independent justification for the payment that is satisfactory to the
Special Master.

V. CORPORATE GOVERNANCE

As noted in Part IIT above, the Rule requires the Special Master to consider the
extent to which compensation structures are “performance-based over a relevant
performance period,” 31 C.F.R. § 30.16(b)(1)(iv). In light of the importance of this
principle, Citigroup must take certain additional corporate governance steps, including
those required by the Rule, to ensure that the compensation structures for the Covered
Employees, and the amounts payable or potentially payable under those structures, are
consistent with the Public Interest Standard.

A. Requirements Relating to Compensation Structures

In order to ensure that objective compensation performance criteria are
“measurable, enforceable, and actually enforced if not met,” fd. § 30.16(b)(1)(iv), long-
term incentive awards may not be granted unless the Personnel and Compensation
Committee of Citigroup’s Board of Directors determines to grant such an award in light
of the employee’s performance as measured against objective performance criteria that
the Committee has developed and reviewed in consultation with the Office of the Special

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No severance benefit to which an employee becomes entitled in the future may
take into account a cash salary increase, or any payment of stock salary, that the
Special Master has approved for 2009.

No additional amounts in 2009 may be accrued under supplemental executive
retirement plans or credited by the company to other “non-qualified deferred
compensation” plans after the date of the Determination Memorandum.

The Special Master has also determined that, in order for the approved

compensation structures to satisfy the standards of 31 C.F.R. § 30.16(a)(3), Citigroup
must adopt policies applicable to these employees as follows:

The achievement of any performance objectives must be certified by the
Personnel and Compensation Committee of Citigroup’s Board of Directors, which
is composed solely of independent directors. These performance objectives must
be reviewed and approved by the Office of the Special Master.

The employees will be prohibited from engaging in any hedging, derivative or
other transactions that have an equivalent economic effect that would undermine
the long-term performance incentives created by the compensation structures.

Citigroup may not provide a tax “gross up” of any kind to these employees.

At least once every year, the Personnel and Compensation Committee of
Citigroup’s Board of Directors must provide to the Department of the Treasury a
narrative description identifying each compensation plan for its senior executive
officers, and explaining how the plan does not encourage the senior executive
officers to take unnecessary and excessive risks that threaten Citigroup’s value.

These requirements are described in further detail in the attached Determination
Memorandum.

The Special Master’s review has been guided by a number of considerations,

including each of the principles articulated in the Interim Final Rule. /d. § 30.16(b)(1).
The following principles were of particular importance to the Special Master in his
determinations with respect to Citigroup’s compensation structures:

Performance-based compensation, The overwhelming majority of approved
compensation depends on Citigroup's performance, and ties the financial
incentives of Citigroup employees to the overall performance of the company. A
majority of the salary paid to employees under these structures will be paid in the
form of stock; and, because the stock will only be redeemable in equal, one-third
installments beginning on the second anniversary of the date the stock salary is
earned (in each case subject to acceleration by one year if Citigroup repays its
TARP obligations), the ultimate value realized by the employee will depend on
Citigroup’s performance over the long term. Guaranteed amounts payable in
cash, in contrast, are generally rejected. Id. § 30.16(b)(1)(iv).


Rather than cash, the majority of each individual’s base salary will be paid in the
form of Citigroup stock. This stock will immediately vest, in accordance with the
Interim Final Rule, but will only be redeemable in three equal, annual installments
beginning on the second anniversary of grant, with each installment redeemable
one year early if Citigroup repays its TARP obligations. This structure
encourages employees to remain employed by Citigroup and to maximize its
long-term value.

Base salary paid in cash should not exceed $500,000 per year, except in
appropriate cases for good cause shown. Overall, cash compensation must be
significantly reduced from cash amounts paid in 2008. In Citigroup’s case, cash
compensation for these employees will decrease 96% from 2008 levels.

Where applicable, compensation should reflect the employee’s role, if any, with
respect to the change in Citigroup’s financial health during 2008, and may take
into account payments not subject to the review of the Special Master, including
payments pursuant to legally binding rights under previously existing valid
employment contracts. Jd. § 30.16(a)(3)(i).

Total compensation for each individual must be appropriate when compared with
the total compensation for to persons in similar positions or roles at similar
entities, and should generally target the 50th percentile of total compensation for
comparable employees. Overall, total compensation must be significantly
reduced from the amounts paid in 2008. In Citigroup’s case, total compensation
for these employees will decrease 70% from 2008 levels.

If—and only if—the employee achieves objective performance metrics developed
and reviewed in consultation with the Office of the Special Master, the employee
may be eligible for long-term incentive awards. These awards, however, must be
payable in the form of restricted stock that will be forfeited unless the employee
stays with Citigroup for at least three years following grant, and may only be
redeemed in 25% installments for each 25% of Citigroup’s TARP obligations that
are repaid. Such long-term incentive awards may not exceed one third of total
annual compensation.

Any and all incentive compensation paid to these employees will be subject to
recovery or “clawback” if the payments are based on materially inaccurate
financial statements, any other materially inaccurate performance metrics, or if
the employee is terminated due to misconduct that occurred during the period in
which the incentive was earned.

Any and all “other” compensation and perquisites will not exceed $25,000 for
each employee (absent exceptional circumstances for good cause shown to the
satisfaction of the Special Master).


c. Annual Long-Term Incentive Awards

The Special Master evaluated Citigroup’s proposed annual long-term incentive
awards in light of the principle that performance-based compensation should be based on
“performance metrics [that are] measurable, enforceable, and actually enforced if not
met.” Id. § 30.16(b)(1)(iv). Citigroup’s proposed awards would have been granted in the
discretion of the Company rather than based on performance metrics. The Special Master
has concluded that the proposed incentive awards are inconsistent with the Public Interest
Standard because they could be granted without respect to the achievement of objective,
measurable performance metrics.

The Special Master also evaluated Citigroup’s proposed awards in light of
recently adopted international standards providing that incentive compensation should
generally be payable over a period of three years, as well as the principle in the Rule
providing that performance-based compensation should be payable “over a relevant
performance period,” id. Restricted stock granted in connection with Citigroup's
proposed awards would have vested on the second anniversary of the grant date.
Accordingly, the Special Master has concluded that the proposed incentive awards are
inconsistent with the Public Interest Standard because they would have vested over a
period too short to be relevant to the long-term performance of the Company.

Accordingly, as described in Exhibits I and IT, the structures the Special Master
has determined to be consistent with the Public Interest Standard include an annual long-
term incentive award payable only upon the achievement of specified, objective
performance criteria that have been developed and reviewed in consultation with the
Office of the Special Master, and that will not vest unless the employee remains
employed until the third anniversary of grant. In addition, as required by the Rule, these
awards may only be redeemed in 25% installments for each 25% of Citigroup’s TARP
obligations that are repaid.

d. “Other”? Compensation and Perquisites

Citigroup proposed limited payments of “other” compensation, as well as
perquisites, to the Covered Employees. The Special Master has concluded that, absent
special justification, employees—not the Company—generally should be responsible for
paying personal expenses, and that significant portions of compensation structures should
not be allocated to such perquisites and “other” compensation. See id. $30.16(b)(1)(iii).

The Rule requires that each Exceptional Assistance Recipient annually disclose to
Treasury any perquisites where the total value for any Senior Executive Officer or Most
Highly Compensated Employee exceeds $25,000. An express justification for offering
these benefits must also be disclosed. Accordingly, as described in Exhibits I and IT, the
compensation structures the Special Master has determined to be consistent with the
Public Interest Standard provide no more than $25,000 in “other” compensation and
perquisites to each of these employees. Any exceptions to this limitation will require that
the Company provide to the Office of the Special Master an independent justification for
the payment that is satisfactory to the Special Master. To the extent that payments

AQ


The compensation structures for these employees will also be subject to the
limitations described in Parts [V.B.1.d., (“other compensation and perquisites), [V.B.1.e.
(non-qualified deferred compensation), and IV.B.1.f. (severance plans) above.

3. Covered Employees at Phibro, LLC

The Special Master reviewed the proposals for these two employees in light of the
principle that compensation arrangements should not “reward employees for short-term
or temporary increases in value,” id. § 30.16(b)(1)(i). Citigroup’s proposal with respect
to these employees called for the payment of substantial bonuses based upon Phibro’s
performance during a fifteen-month period. Accordingly, the Special Master concluded
that the proposals were inconsistent with the Public Interest Standard because they could
provide substantial rewards for short-lived increases in value.

The Special Master also reviewed the proposals in light of the requirement that
compensation structures should “avoid incentives to take unnecessary or excessive risks,”
id. §30.16(b)(1)(i). Citigroup’s proposal called for the payment of cash bonuses based on
the short-term results of a trading operation involving, according to Citigroup’s analysis,
long-term risk-taking that could result in losses exceeding several billion dollars.
Accordingly, the Special Master concluded that the proposals were inconsistent with the
Public Interest Standard because they could provide the employees with incentives to
take unnecessary or excessive risks.

In addition, the Special Master reviewed the proposals in light of the principle that
“amounts payable...should be consistent with, and not excessive taking into account,
compensation structures and amounts for persons in similar positions or roles.” [d.

§ 30.16(b)(1)(v) (emphasis added). Citigroup’s proposal for one of these employees
involved the payment of a 2009 bonus in excess of $95,000,000. The Special Master
concluded that this amount was excessive taking into account compensation amounts for
persons in similar positions or roles at similar entities.

During discussions with the Company, the Office of the Special Master conveyed
the view that the proposal was inconsistent with the Public Interest Standard. Citigroup
asserted that these payments were to be made under agreements providing for legally
binding rights under valid written employment contracts, see id. § 30.10(e)(2). During
these discussions, and while the proposals were under consideration by the Special
Master, Citigroup informed the Special Master that the Company had entered into a
definitive agreement providing for the sale of Phibro to Occidental Petroleum, Inc.,
which has not received assistance under the TARP. Accordingly, the compensation
structures of both Covered Employees at Phibro will no longer be subject to the review of
the Special Master in 2010.

One of the Covered Employees at Phibro entered into an agreement providing that
no amounts will be paid to that employee for 2009 until Phibro is no longer a subsidiary
of Citigroup, and that the amounts will not be payable in cash until January 2011. With
respect to 2009, the Special Master has concluded that, to be consistent with the Public

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