By Emily Glazer
Wells Fargo & Co.'s board is actively considering whether to
claw back pay from former retail-banking head Carrie Tolstedt as
well as from Chief Executive John Stumpf, according to a person
familiar with the matter.
The board is deliberating in the wake of the bank's
sales-tactics scandal and could make a decision as soon as Tuesday,
the person said. The board wants to take action before Mr. Stumpf
returns to Capitol Hill; he is scheduled to testify Thursday before
the House Financial Services Committee.
A Wells Fargo spokeswoman declined to comment.
Clawbacks, or their absence, became a big focus of a Senate
Banking Committee hearing last week. Mr. Stumpf and the bank were
roundly criticized for firing 5,300 employees over five years yet
taking no action against top executives.
They could again become an issue this Thursday. Jeb Hensarling
(R., Texas), chairman of the House panel holding the hearing, told
reporters at a financial services conference Tuesday that Wells
Fargo shareholders would be justified in calling for compensation
to be clawed back.
"If I was a shareholder, I'd be outraged if there weren't
clawbacks," Mr. Hensarling said. He promised to use his hearing and
an ongoing committee investigation to find out how a "fraud of this
massive scale took place" at the lender.
If the board clawed back pay from Mr. Stumpf, it would likely
mark one of the first instances since the financial crisis in which
a firm looked to recoup pay from a CEO. At J.P. Morgan Chase &
Co., the board halved annual compensation in 2012 for chief James
Dimon to $11.5 million from $23.1 million due to that bank's London
Whale trading scandal, but it didn't formally claw back
compensation.
J.P. Morgan did impose the maximum pay clawbacks on three
traders involved with the debacle, which cost the bank around $6
billion. Ina Drew, the former bank executive who oversaw the unit
at the heart of the scandal, volunteered to return pay in line with
the maximum clawback.
Otherwise, there have only been sporadic instances of clawbacks
on Wall Street, usually involving lower-level employees, not top
executives.
Ms. Tolstedt became a point of focus at the Senate hearing
because she oversaw the bank's retail banking operations during the
time in which regulators allege "widespread illegal" practices took
place. She stepped down from her role in July and is set to retire
at the end of the year. Her total compensation, including
accumulated stock and options earned over her 27 years at the bank,
could run about $90 million, according to a letter Wells Fargo sent
senators last week. Ms. Tolstedt received total compensation for
2015 of $9.05 million.
Wells Fargo has been on the hot seat since news spread that up
to 2 million unwanted or fictitious customer accounts were opened
by its employees in an effort to meet sales goals. The bank this
month entered into an enforcement action and paid a $185 million
settlement to two regulatory agencies and the Los Angeles City
Attorney's office.
In response to heated questions about Ms. Tolstedt's
compensation during the Senate hearing, Mr. Stumpf said that is a
matter for the board's human-resources committee. While Mr. Stumpf
is chairman of the board, he isn't a member of that committee,
which is led by Lloyd H. Dean, president and chief executive of
Dignity Health, a San Francisco-based not-for-profit health-care
system.
His answer, though, brought a rebuke from one senator. "The
board should have already acted to claw back those salaries," Sen.
Heidi Heitkamp (D, N.D.) said at the hearing. "If you had come here
and said, the board now is clawing back, these are the things that
we're doing...you would be in a lot better position sitting in that
chair right now."
The board last week tapped Shearman & Sterling LLP to advise
it on whether it should claw back pay from top executives, The Wall
Street Journal reported.
Wells Fargo, like other banks, has detailed clawback policies
and provisions. "Wells Fargo has strong recoupment and clawback
policies in place" in part to discourage its senior executives from
taking "imprudent or excessive risks that would adversely affect
the company," the bank said in its latest proxy statement.
Clawback triggers include misconduct that has reputational harm
to the bank; improper or grossly negligent failure, including in a
supervisory capacity, to monitor or manage material risks to the
bank or business group; and a material failure of risk management,
among others.
In 2013, Wells Fargo agreed to enhance its clawback policy in
exchange for New York City pension funds dropping a related
shareholder resolution proposed by the city Comptroller's office.
New York City pension funds own almost $500 million in Wells Fargo
stock.
Under the revised policy, bank directors can recover pay from
employees engaged in misconduct and from executives who supervised
them.
Mr. Stumpf's total pay package for his 35 years at the bank adds
up to about $160 million, according to an independent analysis by
human resources consultancy Overture Group LLC. That includes stock
awards, stock options and performance shares, among other aspects
of his pay package, based on the bank's Sept. 26 share price of
$45, according to Mark Reilly, a managing director of Overture. Mr.
Stumpf's total compensation for 2015 was $19.3 million.
"This bank needs to regain trust from both the public and
investors, and clawing back profits from senior management would be
a step in the right direction," New York City Comptroller Scott M.
Stringer said in a statement.
The Wells Fargo sales-practices scandal has already rekindled
debate about clawbacks. Regulators earlier this year proposed
tighter restrictions on how Wall Street bankers are paid and are
finalizing the rules.
Among them is a requirement for the biggest firms to claw back
bonuses from employees engaged in misconduct that results in
significant financial or reputational harm or any fraud. Those
proposed rules would require banks to take back pay for wrongdoing
for at least seven years after the executive receives the
payment.
Bankers have resisted the proposals, saying they have already
tightened compensation standards and adopted voluntary clawback
policies.
Gabriel T. Rubin contributed to this article
Write to Emily Glazer at emily.glazer@wsj.com
(END) Dow Jones Newswires
September 27, 2016 17:04 ET (21:04 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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