In letters delivered to the Securities and Exchange Commission (SEC) this last month, Citigroup, Goldman Sachs, and Morgan Stanley are seeking exemption from a shareholder proposal, filed by the AFL-CIO labor coalition, which would force them to identify all their executives who are eligible for awards for entering government service, as well as the specific amounts in question.
This practice is what led AFL-CIO President Richard Trumka to write to seven major Wall Street players last month. The AFL-CIO stated, “We oppose compensation plans that provide windfalls to their executives unrelated to performance.” Trumka wants to know, “how much money we have promised to give away to senior executives if they take government jobs.”
Many believe that these golden parachutes open the door to placing more financial insiders in government who then may be favorable to their Wall Street former bosses. According to Trumka, the banks are not answering him. He asks: “What are they trying to hide?”
Deferred compensation and vested stock options were originally designed to keep talented employees from jumping ship. Heather Slavkin Corzo of the AFL-CIO asks, “Why are we paying these people to leave?” “Unless it’s just a backdoor way to pay off newly minted government regulators,” she added, “it’s hard to see how it’s in shareholders’ interest.”
The practice of Wall Street executives cashing out early when they take government jobs drew criticism during last year’s confirmation hearings for Treasury Secretary Jack Lew. Lew left Citigroup in 2008 and later joined the State Department. His early stock payouts totaled somewhere between $250,000 and $500,000. Antonio Weiss, former investment banker at Lazard, acknowledged he would be paid $21 million in unvested income and deferred compensation upon his exit to a government job.
In Weiss’ case, Senator Warren and other Democrats attacked President Obama’s choice, as just another instance of putting Wall Street regulation into the hands of Wall Street. More opposition is expected from this quarter as the Presidential bids take form.
A 2004 tax law banned accelerated payments but made an exemption for employees who leave for government service. Several banks actually have explicit policies regarding payments like these, outlining automatic awards for executives who go on to government positions. In fact, Goldman Sachs offers “a lump sum cash payment” for government service.
Michael Smallberg of the Project on Government Oversight, a government watchdog group, believes this practice actually ensures these companies “will have friends in high places.” Smallberg says these policies “show how the revolving door is literally written into the pay plans of big companies that already have an advantage over public interest groups when it comes to lobbying and making their voices heard.”
By the way, it may be just coincidence but, Citigroup supposedly never so much as reached out for a conversation before filing the SEC request for exemption. The letter is dated December 19, 2014, just a week after a provision written by Citigroup lobbyists repealing derivatives rules in the Dodd-Frank Act passed Congress. Citi’s no-action letter argues that they have substantially implemented the proposal already. They also deny the existence of golden parachutes, as their officers would supposedly receive the same treatment no matter when or how they left the company, other than to a competitor.
While some say that giving an executive a special financial award as they enter government service encourages public service, others say it’s giving Wall Street insiders even more power over government. If answers are not forthcoming, legislative action might be taken to stop these windfall payments. And it certainly looks like considerable party opposition to these payments may be part of the presidential campaign.
We should be in for some rollicking times.
Richard Bowen is widely known as the Citigroup whistleblower. As Business Chief Underwriter for Citigroup during the housing bubble financial crisis meltdown, he repeatedly warned Citi executive management and the board about fraudulent behavior within the organization. The company certified poor mortgages as quality mortgages and sold them to Fannie Mae, Freddie Mac and other investors.
