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The shareholder rejection of Citigroup’s executive compensation package leaves the company with few options—none of them good. It’s almost certain, in fact, that the company will be sued by shareholders, in this writer’s analysis. Part of the problem here is that Pandit has already been paid $15 million (plus retention awards potentially worth twice that much) under the compensation scheme rejected by shareholders. Citi [ C 35.08 +0.00 (+0.00%) ] shareholders, you see, were asked to approve last year’s pay package—so this is a retrospective vote. If Pandit doesn’t agree to give up pay he’s already received—and the odds of that happening are exceedingly long—the plaintiff’s attorneys will be filing lawsuits in short order. As DealBook’s Steven Davidoff explains: Citigroup may also face litigation. In a number of other cases, shareholder plaintiffs’ lawyers have sued after votes rebuffed pay packages, claiming that the board of directors breached its fiduciary duties or wasted corporate money by ignoring shareholders and paying excessive compensation. Citigroup is such a big target, the chances of it escaping such a suit are very low unless Mr. Pandit gives back all of this compensation. But I suspect that Mr. Pandit will not be in such a generous spirit. The potential success of such a suit is uncertain. So far, we have two major decisions addressing what the law is in these circumstances. One case involving Cincinnati Bell was allowed to go forward by a Federal District Court judge in Ohio. It remains to be seen if the plaintiffs will be successful, but merely by moving forward, the plaintiffs’ lawyers are likely to push Cincinnati Bell to a settlement to avoid costly litigation and possibly embarrassing disclosures. Another lawsuit involving Beazer Homes USA was dismissed by a Georgia state court in deference to the business judgment of the directors and the complex procedural grounds for such cases. The board at Citi could have avoided this altogether. It had advanced warning that its compensation package could be in trouble. Institutional Shareholder Services, the influential proxy advisor, recommended a “no” vote on Citigroup’s executive compensation package. Citi could have sought to negotiate a compensation package that I.S.S. would support—but chose to go ahead with the one it had in place. It’s not too much of a mystery why shareholders rejected the package. Citi’s stock is down 20 percent from a year ago, while the S&P is up more than 6 percent. Rival megabank JPMorgan Chase [ JPM 43.29 -0.61 (-1.39%) ] is down just 1.30 percent from a year ago—and its shareholders actually get a sizable dividend. Pandit is now saying it’s possible Citi won’t even try to pass the Federal Reserve’s stress tests—which it needs to do to raise its dividend—until next year. You can see why shareholders might not want to pay $15 million for this kind of performance. Citigroup is largely owned by institutional investors, such as pension funds and mutual funds. Collectively, institutional investors own 62 percent of the firm. The fact that Citi failed to get support for Pandit’s pay package means that at least some of these sophisticated institutions have turned against the board—at least on compensation. This wasn’t some sort of populist uprising of the “99 percent” voting against the “1 percent.” It was money turning against money. The “say on pay” vote—which was required under the Dodd-Frank reforms—is officially only an advisory plebiscite. This is the first time a major financial institution has seen shareholders reject a pay proposal. In many ways, it will be a test case for how Wall Street will respond to shareholders second-guessing how its executives are paid. Follow John on Twitter. (Market and financial news, adventures in New York City, plus whatever is on his mind.) You can email him at john.carney@nbcuni.com.