Wells Fargo to Claw Back Tens of Millions in Pay from CEO and Former Executive
The two agreed to forfeit stock awards but will not be giving up all of their accumulated compensation
Wells Fargo CEO John Stumpf and former head of Wells Fargo's consumer banking unit Carrie Tolstedt are giving up tens of millions of dollars' worth of pay in the first visible action taken by the bank's board of directors due to the recent scandal over fraudulent accounts.
According to the board, Stumpf is forfeiting $41 million in stock awards and Tolstedt is giving up $19 million in stock awards, both forfeitures effective immediately. Both are also giving up any bonuses they would have received for 2016.
Furthermore, Wells Fargo's independent directors are launching an investigation into the unethical sales practices that led to the scandal and a settlement with the Consumer Financial Protection Bureau that included a $185 million fine.
"We are deeply concerned by these matters, and we are committed to ensuring that all aspects of the company's business are conducted with integrity, transparency and oversight," stated Stephen Sanger, the lead independent director of the board. "We will proceed with a sense of urgency but will take the time we need to conduct a thorough investigation."
Stumpf recently testified about the bank's sales practices before the Senate Banking Committee and is scheduled to appear tomorrow before the House Financial Services Committee. He has faced outcries on both sides of the aisle over the way he has handled the scandal.
Wells Fargo has been urged to "claw back" compensation from its CEO and its former executive by lawmakers, analysts, and consumer advocates. Senator Elizabeth Warren, among others, has called for Stumpf's resignation.
Stumpf apologized for the bank's actions at the hearing before the Senate Banking Committee last week. He took responsibility for them but deferred to the board as the body to make decisions regarding compensation.
Investigation and Compensation
The investigation will be led by a special committee comprised of independent directors who will work with the board's human resources committee as well as with law firm Shearman & Sterling LLP. Stumpf, the current chairman of the board, has recused himself from involvement on all matters connected with the investigation.
The bank says that Tolstedt has already left the company, though she had announced that she would be retiring at the end of the year. Executive Mary Mack has replaced her, effective July 31.
In addition to forfeiting some of her stock awards, says the bank, Tolstedt has also agreed not to pursue any outstanding options while the probe is still pending.
"These initial actions will not preclude additional steps being taken with respect to Mr. Stumpf, Ms. Tolstedt or other executives as a consequence of the information developed in the investigation," the bank said.
However, neither Tolstedt nor Stumpf is giving up all the compensation each accrued during the time the fraud was active. Wells Fargo informed senators last week that the total value of Tolstedt's common stock, stock options, and other holdings was $96.6 million as of September 16, and though it has not provided such a breakdown for Stumpf's holdings, the bank's March proxy indicated that he had common stock worth roughly $77 million as of September 16, as well as 3.8 million options for purchasing company stock that he could exercise within 60 days.
Banking industry critics have been pressuring banks ever since the financial crisis to claw back compensation whenever wrongdoing occurs. However, Wells Fargo's claw back is one of the most dramatic steps taken at a major banking institution.
After the claw back occurred, Wells Fargo spokesman said that the company "fully supports the decision of the independent directors of the board" and that the "management team will cooperate fully and is dedicated to strengthening our culture and taking strong actions to ensure this conduct does not happen again."
Change Is in the Air
Folk also stated that the company would be getting rid of product and sales goals in the retail bank effective October 1, which moves up the previously-announced January 1 date. "We are also making adjustments to ensure that as we make changes, we maintain fair and consistent compensation for retail bank team members and leaders," he said.
Wells Fargo will also be undergoing a "top-to-bottom" Labor Department review of cases, complaints, or violations related to the bank over the last several years, said U.S. Labor Secretary Thomas Perez. Eight senators had written to the Labor Department to request an investigation into the bank's labor practices, including its alleged failure to pay overtime to several employees who worked late and/or on weekends in order to meet the bank's aggressive sales goals.
Senator Warren commended this decision, stating that other federal agencies ought to promptly determine whether or not Wells Fargo and its senior executives should be prosecuted or sanctioned in any other way.
Wells Fargo is currently being sued by former employees for allegedly firing them as retaliation for not engaging in the unethical sales practices currently at the center of the bank's scandal.