With Stumpf’s Resignation, Sens. Baldwin, Menendez, Franken and Colleagues Ask Feds to Strengthen Accountability Measures for Executive Pay
Washington, D.C. – Today, U.S. Senators Tammy Baldwin (D-WI), Bob Menendez (D-NJ), and Al Franken (D-MN) led a group of 16 Democratic senators calling on federal financial regulators to strengthen a proposed “clawback” rule pursuant to Dodd-Frank that aims to prohibit executive pay arrangements that promote excessive risk-taking or misconduct in the financial services industry. In light of the more than two million fraudulent deposit and credit card accounts opened to meet stringent sales quotas at Wells Fargo, including nearly 9,000 accounts in Wisconsin, the senators emphasized the importance of a stronger incentive-based compensation rule that holds senior executives responsible for implementing programs and designing sales cultures that lead to widespread misconduct.
Citing Wells Fargo’s failure to properly align sales goals with customers’ interests, the senators asked regulators to strengthen requirements so major financial institutions are required to enforce policies that reclaim executives’ compensation connected to misconduct and fraudulent activities, writing, “key senior executives at the bank who were both aware of the behavior and were instrumental in designing policies that led to the scandal, such as former Senior Executive Vice President for Community Banking Carrie Tolstedt and former Chairman and CEO John Stumpf, have received hundreds of millions of dollars in bonus compensation, even as over 5,300 low-paid retail banking employees were fired.”
In response to immense public pressure, Wells Fargo rescinded some of the compensation of its former CEO and former head of community banking, yet both walked away with millions of dollars gained as a result of fraudulent activity that led to over $2.6 million in fees nationwide, including over $11,000 in Wisconsin. In their letter, the senators also list recommendations to improve shortcomings in the proposed clawback rule to produce accountability for top executives and rein in unjustifiable risk taking by big financial services firms, adding, “concerns that a number of specific weaknesses in the proposed rule could render the new rule ineffective in creating accountability for top executives.”
Specifically, the senators recommend: (1) lengthening the bonus deferral period in the rule to ensure that executives are not improperly awarded bonuses before wrongdoing has become apparent; (2) requiring, instead of suggesting, downward pay adjustments and clawbacks if misconduct or inappropriate risk-taking has clearly occurred; and (3) in the case of misconduct, strengthening the trigger mechanism for clawbacks to ensure senior executives are held accountable if they served in a managerial position and had oversight of the improper activities.
In reaction to the letter, Marcus Stanley, Policy Director of Americans for Financial Reform (AFR) said: "The consistent lack of individual accountability for top executives at major banks, from the financial crisis through the Wells Fargo case, shows that we need to hold executive bonuses at risk in cases of bank misconduct. Unfortunately, the proposed Dodd-Frank rules in this area are much too weak. We applaud this forceful letter, which outlines concrete ways the rules need to be strengthened to truly hold bank executives accountable."
Addressed to the heads of six federal regulating agencies, the letter was signed by Tammy Baldwin (D-WI); Bob Menendez (D-NJ); Al Franken (D-MN); Richard Blumenthal (D-CT); Barbara Boxer (D-CA); Sherrod Brown (D-OH); Richard J. Durbin (D-IL); Kirsten Gillibrand (D-NY); Patrick Leahy (D-VT); Ed Markey (D-MA); Jeff Merkley (D-OR); Jack Reed (D-RI); Elizabeth Warren (D-MA); Sheldon Whitehouse (D-RI); and Ron Wyden (D-OR).
A copy of the Senators’ letter can he found here.
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