INCENTIVE PLANS

Discretionary Annual Incentive Awards

Citigroup grants immediate cash bonus payments and various forms of immediate and deferred awards as part of its discretionary annual incentive award program involving a large segment of Citigroup’s employees worldwide. Most of the shares of common stock issued by Citigroup as part of its equity compensation programs are to settle the vesting of the stock components of these awards.

Discretionary annual incentive awards are generally awarded in the first quarter of the year based on the previous year’s performance. Awards valued at less than U.S. $100,000 (or the local currency equivalent) are generally paid entirely in the form of an immediate cash bonus. Pursuant to Citigroup policy and/or regulatory requirements, certain employees and officers are subject to mandatory deferrals of incentive pay and generally receive 25%–60% of their awards in a combination of restricted or deferred stock, deferred cash stock units or deferred cash. Discretionary annual incentive awards to many employees in the EU are subject to deferral requirements regardless of the total award value, with at least 50% of the immediate incentive delivered in the form of a stock payment award subject to a restriction on sale or transfer (generally, for 12 months).

Deferred annual incentive awards may be delivered in the form of one or more award types: a restricted or deferred stock award under Citi’s Capital Accumulation Program (CAP), or a deferred cash stock unit award and/or a deferred cash award under Citi’s Deferred Cash Award Plan. The applicable mix of awards may vary based on the employee’s minimum deferral requirement and the country of employment.

Subject to certain exceptions (principally, for retirement-eligible employees), continuous employment within Citigroup is required to vest in CAP, deferred cash stock unit and deferred cash awards. Post employment vesting by retirement-eligible employees and participants who meet other conditions is generally conditioned upon their refraining from competition with Citigroup during the remaining vesting period, unless the employment relationship has been terminated by Citigroup under certain conditions.

Generally, the deferred awards vest in equal annual installments over three- or four-year periods. Vested CAP awards are delivered in shares of common stock. Deferred cash awards are payable in cash and, except as prohibited by applicable regulatory guidance, earn a fixed notional rate of interest that is paid only if and when the underlying principal award amount vests. Deferred cash stock unit awards are payable in cash at the vesting value of the underlying stock. Generally, in the EU, vested CAP shares are subject to a restriction on sale or transfer after vesting, and vested deferred cash awards and deferred cash stock units are subject to hold back (generally, for 12 months in each case).

Unvested CAP, deferred cash stock units and deferred cash awards are subject to one or more clawback provisions that apply in certain circumstances, including gross misconduct. CAP and deferred cash stock unit awards, made to certain employees, are subject to a formulaic performance-based vesting condition pursuant to which amounts otherwise scheduled to vest will be reduced based on the amount of any pretax loss in the participant’s business in the calendar year preceding the scheduled vesting date. A minimum reduction of 20% applies for the first dollar of loss for CAP and deferred cash stock unit awards.

In addition, deferred cash awards are subject to a discretionary performance-based vesting condition under which an amount otherwise scheduled to vest may be reduced in the event of a “material adverse outcome” for which a participant has “significant responsibility.” These awards are also subject to an additional clawback provision pursuant to which unvested awards may be canceled if the employee engaged in misconduct or exercised materially imprudent judgment, or failed to supervise or escalate the behavior of other employees who did.

Sign-on and Long-Term Retention Awards

Stock awards and deferred cash awards may be made at various times during the year as sign-on awards to induce new hires to join Citi or to high-potential employees as long-term retention awards.

Vesting periods and other terms and conditions pertaining to these awards tend to vary by grant. Generally, recipients must remain employed through the vesting dates to vest in the awards, except in cases of death, disability or involuntary termination other than for gross misconduct. These awards do not usually provide for post employment vesting by retirement-eligible participants.

Outstanding (Unvested) Stock Awards

A summary of the status of unvested stock awards granted as discretionary annual incentive or sign-on and long-term retention awards is presented below:



Unvested stock awards	Shares		Weighted- average grant date fair value per share
Unvested at December 31, 2017	36,931,040		$	47.89
Granted⁽¹⁾	12,896,599		73.87
Canceled	(1,315,456	)	54.50
Vested⁽²⁾	(16,783,587	)	49.54
Unvested at December 31, 2018	31,728,596		$	57.30


(1)	The weighted-average fair value of the shares granted during 2017 and 2016 was $59.12 and $37.35, respectively.


(2)	The weighted-average fair value of the shares vesting during 2018 was approximately $77.65 per share.

Total unrecognized compensation cost related to unvested stock awards was $538 million at December 31, 2018. The cost is expected to be recognized over a weighted-average period of 1.7 years.

Performance Share Units

Certain executive officers were awarded a target number of performance share units (PSUs) each February from 2015 to 2018, for performance in the year prior to the award date. For grants prior to 2016, PSUs will be earned only to the extent that Citigroup attains specified performance goals relating to Citigroup’s return on assets and relative total shareholder return against peers over the three-year period beginning with the year of award. The actual dollar amounts ultimately earned could vary from zero, if performance goals are not met, to as much as 150% of target, if performance goals are meaningfully exceeded.

The PSUs granted in February 2016 are earned over a three-year performance period based on Citigroup’s relative total shareholder return as compared to peers. The actual dollar amounts ultimately earned could vary from zero, if performance goals are not met, to as much as 150% of target, if performance goals are meaningfully exceeded.

The PSUs granted in February 2017 are earned over a three-year performance period based half on return on tangible common equity performance in 2019, and the remaining half on cumulative earnings per share over 2017 to 2019.

The PSUs granted in February 2018 are earned over a three-year performance period based half on return on tangible common equity performance in 2020, and the remaining half on cumulative earnings per share over 2018 to 2020.

For the PSUs awarded in 2016, 2017 and 2018, if the total shareholder return is negative over the three-year performance period, executives may earn no more than 100% of the target PSUs, regardless of the extent to which Citi outperforms peer firms.

For all award years, the value of each PSU is equal to the value of one share of Citi common stock. Dividend equivalents will be accrued and paid on the number of earned PSUs after the end of the performance period.

PSUs are subject to variable accounting, pursuant to which the associated value of the award will fluctuate with changes in Citigroup’s stock price and the attainment of the specified performance goals for each award, until the award is settled solely in cash after the end of the performance period. The value of the award, subject to the performance goals, is estimated using a simulation model that incorporates multiple valuation assumptions, including the probability of achieving the specified performance goals of each award. The risk-free rate used in the model is based on the applicable U.S. Treasury yield curve. Other significant assumptions for the awards are as follows:



Valuation assumptions	2018		2017		2016
Expected volatility	24.93	%	25.79	%	24.37	%
Expected dividend yield	1.75		1.30		0.40

A summary of the performance share unit activity for 2018 is presented below:



Performance share units	Units		Weighted- average grant date fair value per unit
Outstanding, beginning of period	1,786,726		$	40.94
Granted⁽¹⁾	495,099		83.24
Canceled	(25,160	)	44.07
Payments	(488,304	)	44.07
Outstanding, end of period	1,768,362		$	51.88


(1)	The weighted-average grant date fair value per unit awarded in 2017 and 2016 was $59.22 and $27.03, respectively.

PSUs granted in 2015 and 2017 were equitably adjusted after the enactment of Tax Reform, as required under the terms of those awards. The adjustments were intended to reproduce the expected value of the awards immediately prior to the passage of Tax Reform. The PSUs granted in 2016 were not impacted by Tax Reform.

Stock Option Programs

All outstanding stock options are fully vested, with the related expense recognized as a charge to income in prior periods. Generally, the stock options outstanding have a six-year term, with some stock options subject to various transfer restrictions.

The following table presents information with respect to stock option activity under Citigroup’s stock option programs:



	2018						2017						2016
	Options		Weighted- average exercise price		Intrinsic value per share		Options		Weighted- average exercise price		Intrinsic value per share		Options		Weighted- average exercise price		Intrinsic value per share
Outstanding, beginning of period	1,138,813		$	161.96	$	—	1,527,396		$	131.78	$	—	6,656,588		$	67.92	$	—
Canceled	—		—		—		—		—		—		(25,334	)	40.80		—
Expired	(376,588	)	283.63		—		—		—		—		(2,613,909	)	48.80		—
Exercised	—		—		—		(388,583	)	43.35		15.67		(2,489,949	)	49.10		6.60
Outstanding, end of period	762,225		$	101.84	$	—	1,138,813		$	161.96	$	—	1,527,396		$	131.78	$	—
Exercisable, end of period	762,225						1,138,813						1,527,396

The following table summarizes information about stock options outstanding under Citigroup’s stock option programs at December 31, 2018:



		Options outstanding			Options exercisable
Range of exercise prices	Number outstanding	Weighted-average contractual life remaining	Weighted-average exercise price		Number exercisable	Weighted-average exercise price
$39.00–$99.99	312,309	2.1 years	$	43.56	312,309	$	43.56
$100.00–$199.99	449,916	0.0 years	142.30		449,916	142.30
Total at December 31, 2018	762,225	0.9 years	$	101.84	762,225	$	101.84

Other Variable Incentive Compensation

Citigroup has various incentive plans globally that are used to motivate and reward performance primarily in the areas of sales, operational excellence and customer satisfaction. Participation in these plans is generally limited to employees who are not eligible for discretionary annual incentive awards. Other forms of variable compensation include monthly commissions paid to financial advisors and mortgage loan officers.

Summary

Except for awards subject to variable accounting, the total expense recognized for stock awards represents the grant date fair value of such awards, which is generally recognized as a charge to income ratably over the vesting period, other than for awards to retirement-eligible employees and immediately vested awards. Whenever awards are made or are expected to be made to retirement-eligible employees, the charge to income is accelerated based on when the applicable conditions to retirement eligibility were or will be met. If the employee is retirement eligible on the grant date, or the award is vested at the grant date, the entire expense is recognized in the year prior to grant.

Recipients of Citigroup stock awards generally do not have any stockholder rights until shares are delivered upon vesting or exercise, or after the expiration of applicable required holding periods. Recipients of restricted or deferred stock awards and deferred cash stock unit awards, however, may, except as prohibited by applicable regulatory guidance, be entitled to receive dividends or dividend-equivalent payments during the vesting period. Recipients of restricted stock awards generally are entitled to vote the shares in their award during the vesting period. Once a stock award vests, the shares are freely transferable, unless they are subject to a restriction on sale or transfer for a specified period.

All equity awards granted since April 19, 2005 have been made pursuant to stockholder-approved stock incentive plans that are administered by the Personnel and Compensation Committee of the Citigroup Board of Directors, which is composed entirely of independent non-employee directors.

At December 31, 2018, approximately 42.4 million shares of Citigroup common stock were authorized and available for grant under Citigroup’s 2014 Stock Incentive Plan, the only plan from which equity awards are currently granted.

The 2014 Stock Incentive Plan and predecessor plans permit the use of treasury stock or newly issued shares in connection with awards granted under the plans. Treasury shares were used to settle vestings from 2016 to 2018, and for the first quarter of 2019, except where local laws favor newly issued shares. The use of treasury stock or newly issued shares to settle stock awards does not affect the compensation expense recorded in the Consolidated Statement of Income for equity awards.

Incentive Compensation Cost

The following table shows components of compensation expense, relating to certain of the incentive compensation programs described above:



In millions of dollars	2018		2017		2016
Charges for estimated awards to retirement-eligible employees	$	669	$	659	$	555
Amortization of deferred cash awards, deferred cash stock units and performance stock units	202		354		336
Immediately vested stock award expense⁽¹⁾	75		70		73
Amortization of restricted and deferred stock awards⁽²⁾	435		474		509
Other variable incentive compensation	640		694		710
Total	$	2,021	$	2,251	$	2,183


(1)	Represents expense for immediately vested stock awards that generally were stock payments in lieu of cash compensation. The expense is generally accrued as cash incentive compensation in the year prior to grant.


(2)	All periods include amortization expense for all unvested awards to non-retirement-eligible employees.