Wells Fargo CEO John Stumpf is losing millions of dollars in stock over a fake-accounts scandal, but some critics Wednesday said he should pay still more – with his job as CEO or his chairman’s title.
The board of directors at the San Francisco-based bank said late Tuesday that Stumpf will forfeit $41 million in stock awards, while former retail banking executive Carrie Tolstedt will give up $19 million of her grants as the board launches an investigation of the bank’s sales practices, which included the opening of unauthorized customer accounts.
After brutal questioning before the Senate Banking Committing last week, the 63-year-old Stumpf will be back on Capitol Hill Thursday for another round of grilling, this time from the House Financial Services Committee. That panel includes three members from the Charlotte area: Republicans Robert Pittenger, Patrick McHenry and Mick Mulvaney.
Sen. Elizabeth Warren, D-Mass., on Wednesday reiterated her call for Stumpf to resign, adding that he should return additional compensation and face federal investigation. She has criticized the bank for terminating lower-level employees in the scandal but taking little action against top executives.
“Wells employees who tried to raise the alarm about the creation of fake accounts were fired. Their lives were turned upside down,” Warren said in a statement. “But John Stumpf is going to be just fine: he keeps his job and most of the millions of dollars he made while this massive fraud went on right under his nose.”
Stumpf has given no indication that he plans to depart and said last week that he was fully committed to fixing problems at the bank. In a statement, Wells said its “management team will cooperate fully” with the investigation and is “dedicated to strengthening our culture and taking strong actions to ensure this conduct does not happen again.”
The bank this month agreed to pay $185 million to federal regulators and the City of Los Angeles to settle claims that the bank’s employees opened unauthorized accounts for customers under pressure to meet aggressive sales goals. The bank, which did not admit wrongdoing in the settlement, has said it fired 5,300 employees over the practices from 2011 through this year.
In a securities filing Wednesday, the bank disclosed that it faces additional investigations from the U.S. Justice Department and state attorneys general and prosecutor’s offices. Also on Wednesday, California’s treasurer said he’s suspending some business with Wells, and Federal Reserve Chair Janet Yellen said her agency has started a review of the “disturbing” compliance failures at big U.S. banks.
The awards being take away from Stumpf represent about a quarter of the $160 million in stock, deferred compensation and retirement benefits he would have received upon retirement, according to an analysis by Chicago-based human-resources consultancy Overture Group. Tolstedt is forgoing about 21 percent of the $91 million in similar compensation she would have received at retirement, according to the analysis.
Stumpf and Tolstedt are also giving up bonuses for 2016, and Tolstedt has now left the company, earlier than her planned departure at the end of this year. Stumpf will forgo his salary while the board conducts its independent probe. A source familiar with the situation said the board and Stumpf mutually agreed to the actions.
Sen. Sherrod Brown, the top Democrat on the Senate Banking Committee, said Wells Fargo’s actions were a “a step in the right direction” but that he still had unanswered questions. He and other Democrats on the committee released a list of queries they said were left unanswered at a Senate Banking Committee hearing last week.
“We still don’t know how many customers were harmed and how long this fraud continued,” Brown said. “We also don’t know how many low-paid employees got fired for failing to meet quotas that Wells Fargo now recognizes were too high.”
Critics target board
Some critics Wednesday also targeted the bank’s board, packed with former CEOs and government officials, for not acting sooner to crack down on the accounts issue. The board has not announced any member resignations or other changes.
“They have a board?” activist shareholder Bart Naylor joked Wednesday.
“Wells Fargo demonstrates what’s true at many, if not most, mega-companies: the boards are captured by management. Lots of them should resign and be sued for failure of diligence,” said Naylor, who this month filed a shareholder proposal urging Wells Fargo to study the idea of breaking itself up.
Charles Elson, an authority on corporate governance and a professor at the University of Delaware, commended the board for the actions it took Tuesday but said the bank should have two different people serving as chairman and CEO.
“Given these circumstances, the board would be well advised to split the roles,” he said.
It’s not unusual for big banks and other companies to have the same person hold both titles. But supporters of separating the roles say such a division increases the board’s independence from company management, resulting in better oversight. Earlier this year, Wells Fargo shareholders voted down a separation proposal.
In a statement Tuesday, Stephen Sanger, the board’s lead independent director, said the investigation will “proceed with a sense of urgency” but take the necessary time to conduct a thorough review. The board also said its initial actions do not preclude further steps against Stumpf, Tolstedt or other executives.
Wells Fargo said Wednesday that it’s not making board members available for interviews.
The bank’s shares closed up less than 1 percent at $45.31, but the stock is down 9 percent since the government fines were announced Sept. 8.
Tolstedt’s rapid downfall
Wells Fargo has its largest employment hub in Charlotte, with more than 23,000 workers. A Charlotte-based executive, Mary Mack, replaced Tolstedt as head of the community banking unit July 31.
When announcing her planned retirement this summer, Stumpf described Tolstedt, 56, as “one of our most valuable Wells Fargo leaders, a standard bearer for our culture, a champion for our customers, and a role model for responsible, principled and inclusive leadership.” Stumpf also said the transition from Tolstedt to Mack represented “Wells Fargo’s commitment to stable, long-range succession planning.”
In one of the first major changes in the unit, Wells said Tuesday that it’s eliminating all sales goals in the retail bank by Oct. 1.
Stumpf’s forfeiture dwarfs the $19.3 million he was awarded for his work in 2015. It’s also a much stiffer price than what JPMorgan CEO Jamie Dimon paid when his board found he bore “ultimate responsibility” for botched trades in a London office that lost more than $6.2 billion. In that case, directors cut Dimon’s 2012 pay in half to $11.5 million.
But there also have been costlier deals for CEOs. In 2007, for example, former UnitedHealth Group Inc. CEO William W. McGuire agreed to give up more than $600 million of benefits after investors claimed that he received improperly backdated stock options.
In January 2009, then-Bank of America CEO Ken Lewis took no bonus for the previous year, joining executives at other big banks that received bailouts during the financial crisis. As the year went on, Lewis faced tough questioning from shareholders and lawmakers over his troubled Merrill Lynch acquisition and by that fall, after returning from vacation with a rare beard, he decided to retire from the Charlotte-based bank.
The Obama administration’s pay czar later determined Lewis would receive no compensation for 2009.
Banking industry analyst Nancy Bush said Wednesday that Wells Fargo took “significant action” with taking back compensation from Stumpf and Tolstedt. “The bigger issue now will be the outcome of their own investigation,” she said.
“More actions will flow from that,” Bush said. “This is by no means over, and there is much yet to come.”
Bloomberg News contributed.