Wells Fargo leaders reaped lavish pay even as account scandal unfolded
Published 5:47 am Saturday, March 18, 2017
Wells Fargo and its leaders have expressed much contrition about the bank’s misdeeds, which included setting up as many as 2 million bank accounts without customers’ consent. Top executives have surrendered more than $90 million in compensation, fired employees at all levels and vowed to clean house.
But the top executives — particularly the current chief executive and his predecessor, who retired under pressure in October — still took home lavish sums last year, according to a regulatory filing this week.
Wells Fargo’s former chief executive, John Stumpf, realized pretax earnings of more than $83 million by exercising vested stock options, amassed during his 34 years at the bank, and receiving payouts on certain stock awards. That is more than double the $41 million in unvested stock awards that Stumpf forfeited because of the bank’s sales scandal.
In a quirk of timing that might raise some questions, one month before regulators announced penalties against Wells Fargo over its long-running fake accounts scheme, Stumpf exercised 1.5 million options, a significant chunk of his vested holdings.
“He took his winning tickets to the window while the window was still open,” said Brian Foley, an executive compensation consultant who analyzed Stumpf’s transactions. “He forfeited a significant sum, but at the end of the day, what he walked away with was even more significant.”
Stumpf did not sell any of his shares. After surrendering a large chunk to cover taxes and the cost of converting his options, he retained those that remained. Directly and through trusts, he now owns 2.5 million Wells Fargo shares, some 800,000 shares more than he held a year ago. His stake is valued at $147 million. Wells Fargo’s rules limit how many shares its executive officers can sell, but the restrictions on Stumpf will expire a year after his retirement.
A Wells Fargo spokesman declined to comment on Stumpf’s stock transactions.
The bank’s new leader, Timothy Sloan, also received a pay bump last year despite giving up his cash bonus and some stock awards. Sloan collected compensation of around $13 million, up from the $11 million he took home a year earlier.
The details of Wells Fargo’s executive compensation are infuriating to some shareholder activists, who have been calling for major reforms. At next month’s annual shareholders meeting, the bank’s top executives will confront disgruntled investors, including an order of nuns who say they are embarrassed to call Wells Fargo their bank, and Gerald Armstrong, who has held the bank’s stock for nearly 50 years and thinks the “lap dogs” on the bank’s board need to be replaced by a “growling Doberman.”
The nuns, members of Sisters of St. Francis of Philadelphia, want to see Wells Fargo commit to “real, systemic change in culture, ethics, values and financial sustainability,” said Sister Nora Nash, the order’s director of corporate social responsibility.
At next month’s meeting, to be held in Ponte Vedra Beach, Florida, shareholders will vote on a proposal from the sisters asking the bank for a full accounting on the “root causes” of its fraudulent activity, and the steps being taken to prevent future misdeeds.
Wells Fargo’s board opposes the proposal, which Nash called a disappointment. “We believe that we will get a strong yes vote from shareholders,” she said.
The AFL-CIO supports the resolution.
“We think this issue is so material to investors that it’s deserving of a hearing at the shareholder meeting,” said Brandon Rees, deputy director of the AFL-CIO’s investment office.
Wells Fargo said it was preparing to disclose more information about its misdeeds. Next month, the bank’s board plans to release the results of its internal investigation into the wrongdoing, which prompted the firing of about 5,300 rank-and-file workers over the past few years.
While the investigators’ findings have not yet been made public, Wells Fargo has begun to act on them. Four senior executives — including the former chief risk officer of the bank’s retail banking division and two regional presidents — were ousted last month after being accused of wrongdoing. The company released no details on their actions.
“We are taking decisive steps,” said Mark Folk, a Wells Fargo spokesman. “We are focused on making things right for our customers, fixing the problems and building a better Wells Fargo.”
Wells Fargo has been in turmoil since its admission in September that during the course of several years, employees trying to meet aggressive sales quotas had opened as many 2 million fraudulent accounts. The company paid $185 million to settle cases brought by two federal regulators and the Los Angeles city attorney and refunded $3.2 million to customers who were charged fees on unauthorized accounts.
But several other investigations are continuing, including criminal inquiries by the Justice Department and several state attorneys general.
The scandal has reverberated throughout the banking industry. The Financial Consumer Agency of Canada said this week that it would review banks’ practices in light of reports that employees at TD Bank, under pressure to meet sales targets, had opened accounts without customers’ consent.
Some activists see the Wells Fargo scandal as a fresh sign, in the aftermath of the financial crisis, that the largest banks have grown too big to manage. A proposal submitted by Bartlett Naylor, financial policy advocate at Public Citizen, asks Wells Fargo’s stockholders to consider breaking up the bank.
The company’s sales scandal, he said, illustrates that “senior officials either directed the fraud or were incapable of preventing it.”
Naylor, a longtime critic of large banks, does not expect his proposal to draw much support. A similar proposal he initiated at JPMorgan Chase last year “did worse than the opponent in a North Korean election,” he acknowledged. (Fewer than 3 percent of JPMorgan’s shareholders voted for it.)
And Republicans in Washington are clamoring for less stringent oversight and fewer regulatory restraints on big banks, not more, and moving to reverse the Obama administration’s wave of stronger regulations.