Wells Fargo boss’s salary forfeit is an empty gesture
On the face of it, giving up $41m (£32m) goes way beyond spending a few minutes on the banking executive naughty step. That is what John Stumpf, the embattled CEO of American bank Wells Fargo, is forgoing as a result of the bogus account scandal that amply demonstrates that banking hasn’t got even close to cleaning up its act.
Mr Stumpf, we are told, is also going to work for free while he cleans up the mess. What a guy! Until you realise, that is, that he was paid $19.3m in 2015, partly as a reward for, you’ve guessed it, growing the bank’s number of accounts. Given that Wells has already been fined $185m, it’s an empty gesture. He
shouldn’t be working for it at all.
Carrie Tolstedt, the executive who headed the division responsible for creating the bogus accounts, isn’t. She’s gone. But she was due to depart at the end of the year anyway. She’s also giving up some unvested share awards, some $19m of them, while agreeing not to exercise a further $34m in options. However, that again needs to be put in context. In a letter the bank sent to Senator Elizabeth Warren, it was revealed that she still owns $43.3m in shares accumulated during her career, plus options worth $34.1m that are vested but unexercised. In other words, they’re hers.
In the absence of any further action by the bank, she could therefore leave with a share and option portfolio worth $77.3m. Shameless doesn’t even begin to describe it. Those numbers are enough to make anyone feel dizzy. They go to the heart of this bank’s problems, and of the industry’s problems. They show how little has changed since the financial crisis.
Once again we are watching a scandal at a financial institution that sought to incentivise people based on sales targets while creating a “pressure cooker” environment (which is how former employees described it to CNN Money) to ensure they were met. Those targets were described in the same interviews as “wildly unrealistic”. So it should come as no surprise that people cut corners, or worse.
Once again the culture fostered by executives was responsible, executives encouraged to oversee such a culture by the dizzying sums dangled in front of them. Note to remuneration committees: banking executives are not known for their altruism. They don’t go into the industry to make the world a better place. They go into it for the money. If you incentivise them to do the wrong thing, then the chances are they will do the wrong thing.
Wells Fargo shareholders face an even bigger bill, but they have only themselves to blame. They presided over this situation. They colluded in cult of the executive
At this point readers from the UK might be tempted to say “it couldn’t happen here”. But it has. Remember the Lloyds Banking Group salesman who sold himself a life insurance policy that he couldn’t afford to hit his own unrealistic targets?
The Lloyds executives who presided over that fiasco weren’t paid quite as much as their opposite numbers at Wells Fargo, but they won’t want for anything in retirement. Meanwhile shareholders had to pick up the tab for a £28m fine, plus the cost of compensating customers.
Wells Fargo shareholders face an even bigger bill, but they have only themselves to blame. They presided over this situation. They colluded in cult of the executive. They nodded their heads and waved through the incentive packages that have come back to bite them. The chances are they will do it again. We are told that the Wells Fargo board is investigating the situation and that there may be further personnel action. Look, see, we’re doing something.
Now, imagine for a moment what would happen if the bogus accounts were the responsibility of a single rogue branch run by a single rogue manager. There would be no investigations, and there would be no discussions before taking action. Those involved would be out, escorted from their workplace by security guards with one of these grey boxes containing personal effects in their hands. And that would only be the start of their problems.
Mr Stumpf, by contrast, is still working. But, but, but, he’s doing it for free! Well, what a guy. Thanks, John!
It’s interesting that as this story was developing across the pond, Financial Conduct Authority boss Andrew Bailey was penning a piece on the six-month anniversary of Britain’s Senior Managers Regime, while launching consultations on bank bosses’ “duty of responsibility”. That, you may remember, was watered down from the much tougher “presumption of responsibility” after bankers kicked up a huge fuss. Mr Bailey also sought to justify the dropping of a review into banking culture.
If you’re wondering why we so often hear cries of “never again” in the wake of banking scandals, now you’ve got your answer.