Clawing back bankers' pay at Wells Fargo harder than it looks

Senators insist Wells Fargo regain money given to dismissed execs

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By Caleb Melby and Yalman Onaran, Bloomberg News

Members of the Senate Banking Committee are demanding that Wells Fargo claw back pay from Carrie Tolstedt, the executive whose community banking unit created two million unauthorized customer accounts.

They’re not likely to get as much as they want.

At a hearing in Washington, D.C., on Tuesday, senators cited figures eclipsing $100 million. During her three-decade career at Wells Fargo and its predecessors, Tolstedt received about $44 million in shares, $34 million in vested options and still more from cash bonuses and stock sales. But the bank’s clawback policy, as with that of most U.S. companies, doesn’t allow Wells Fargo to go after those assets unless there’s a financial restatement.

When the damage is reputational harm, only unvested stock awards can be recouped — in the case of Tolstedt, whose retirement was announced in July, that’s about $19 million.

Decisions about clawbacks will be made by Wells Fargo’s board, CEO John Stumpf, told senators. The board’s human resources committee, headed by Lloyd Dean, CEO of Dignity Health, a San Francisco-based operator of not-for-profit hospitals, will make recommendations to the board.

“The Wells Fargo board is actively engaged in this issue,” said Stumpf, who’s also the board’s chairman.

Sen. Elizabeth Warren said Stumpf should resign and pay should be clawed back. The Massachusetts Democrat accused him of “gutless leadership” for firing lower-level employees while not holding top managers accountable.

While clawback policies have exploded in popularity — 76 percent of the biggest banks around the world have them, up from 44 percent in 2010, according to Mercer, a compensation-consulting company — they’re rarely used. During the past two years, only 10 percent of companies polled by Mercer in April used such policies to reclaim compensation that already had been paid.

“Clawbacks are easier said than done,” said Charles Elson, director of the University of Delaware’s John L. Weinberg Center for Corporate Governance. “Once it’s out the door, it’s hard to get back.”

More common, and easier to pull off, is the cancellation of compensation a company has promised to pay executives and other employees in the future. Even more businesses have this type of malus policy — think opposite of bonus, both words from Latin.

In Mercer’s survey, 90 percent of big banks had some clause to rescind unvested incentives for reasons ranging from misconduct to poor performance. Half the banks polled applied their malus policies in the past two years.

Even in jurisdictions where companies can reach into bank and brokerage accounts, such as the United States, doing so almost always means lengthy and expensive litigation between the company and the employee.

“I would guess that there are some situations where the board concludes that the expense and energy of a potential legal battle is simply not worth the potential recovery,” said Michael Melbinger, a partner specializing in employee benefits and executive compensation at Winston & Strawn in Chicago.

Businesses end up reserving clawbacks for the most extreme circumstances.

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