Wells Fargo to Claw Back $41 Million of Chief’s Pay Over Scandal

Wells Fargo to Claw Back $41 Million of Chief’s Pay Over Scandal

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John G. Stumpf, chief executive of Wells Fargo, last week on Capitol Hill.

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Gabriella Demczuk for The New York Times

Wells Fargo announced on Tuesday that it would claw back compensation valued at $41 million from its embattled chairman and chief executive, John G. Stumpf, as the financial consequences of the scandal over illegally created sham accounts at the bank reached the executive suite.

The action represented one of the first times since the 2008 financial crisis that a chief executive has been forced to give up compensation. Many large companies have adopted clawback provisions at the urging of regulators and shareholder advocates, but boards have been hesitant to invoke them.

And it came one week after a blistering Senate hearing in which lawmakers criticized the company and its board for not holding its leaders financially accountable for the scandal.

Carrie Tolstedt, who led the Wells Fargo community banking division now engulfed in scandal, will surrender stock grants valued at about $19 million, the board said as it announced an investigation into the company’s practices.

The two executives will also forgo any bonus payments for the year.

The company, which has been reeling since the scandal was revealed this month, is facing a hearing by the House Financial Services Committee on Thursday.

“We are deeply concerned by these matters,” Stephen W. Sanger, a Wells Fargo director, said in a statement. “We will conduct this investigation with the diligence it deserves — and will follow the facts wherever they lead.”

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Warren Calls Out Wells Fargo C.E.O.

“You should resign, you should give back the money,” said Senator Elizabeth Warren. “And you should be criminally investigated.”


By CNBC on Publish Date September 20, 2016.


by Michael Reynolds/European Pressphoto Agency.

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Wells Fargo acknowledged this month that its employees had, over the course of several years starting in 2011, opened as many as 1.5 million bank accounts and 565,000 credit card accounts that may not have been authorized by customers. The company agreed to pay $185 million in penalties and fines to settle cases brought by the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency and the Los Angeles city attorney, and said it had fired 5,300 employees for ethics violations

A number of former employees say the illegal practices stemmed from intense pressure to meet unrealistic sales goals.

At last week’s Senate Banking Committee hearing, Mr. Stumpf was berated by some senators.

“You haven’t returned a single nickel of your personal earnings,” Senator Elizabeth Warren, Democrat of Massachusetts, rebuked Mr. Stumpf, as she urged him to resign. “It’s gutless leadership.”

Mr. Stumpf repeatedly said any forfeited compensation was an issue for the board — of which he is the chairman — to take up. “Whatever the board accepts, whatever they do, I will accept and I will support,” he said.

Mr. Stumpf, 63, will forgo his base salary, $2.8 million annually, during the investigation, Wells Fargo said. The company’s board has hired the law firm Shearman & Sterling to work on its inquiry.

Only a relatively small portion of the compensation of Wells Fargo’s executives can be clawed back. The bank’s clawback provisions are specific about the circumstances in which it can recoup money from executives — most hinge on misconduct that forces the company to significantly revise its financial results or pay that was received based on inaccurate financial information. Neither is the case here.

But it took advantage of a clause that allows the company to retract performance-based stock awards if an executive causes significant “reputational harm” to the company.

Carrie Tolstedt, who led the Wells Fargo community banking group, at a gala in 2010.

Credit
Hiroko Masuike/The New York Times

In his public remarks, Mr. Stumpf has tried to play down the bank’s misdeeds, emphasizing that only a small percentage of its work force has been caught acting unethically and fired for it. “This was by 1 percent of our people,” he said at the Senate hearing.

He also he pushed back on Ms. Warren’s attack, telling her, “I disagree with the fact this is a massive fraud.”

But that view is not shared by irate customers, lawmakers and former workers. As more details emerge of how toxic Wells Fargo’s sales culture could be — and of how many workers were fired or punished for their attempts to draw attention to the problems they saw at their branches — the scandal has intensified.

The $41 million Mr. Stumpf is forfeiting represents all of his unvested equity awards, but he already held nearly 5.5 million shares of stock owned outright or vesting imminently as of March, when Wells Fargo filed an annual disclosure of his holdings.

Based on Tuesday’s closing share price of $45.09, those 5.5 million shares would be worth nearly $247 million.

Ms. Tolstedt stepped down this year in what the company said was a retirement — a move that left her eligible for as much as $125 million in stock and options.

Mr. Stumpf is expected to face another barrage of questions on Thursday before the House Financial Services Committee. Further fallout for Wells Fargo is possible: The Department of Justice is investigating, and customers, shareholders and former employees have filed their own lawsuits against the company.

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