Amid sharp criticism of its actions during the alleged sham accounts scandal – specifically the inaction to it – the board for Wells Fargo is clawing back some $41 million from its embattled CEO and chairman John Strumpf. That money comes from unvested stock awards. Stumpf is also going to forego his salary while the company delves into its own retail banking practices – specifically sales – that resulted in bank employees opening hundreds of thousands of pony accounts without customer approval. Those employees were reportedly trying to reach account goals set by the bank.
In addition to taking action against Strumpf, the bank’s previous head of community banking is giving up her unvested equity stock awards, which currently are valued at $19 million. She is also immediately retiring and also will not receive certain retirement benefits, valued in the millions. Neither is going to take home any bonuses for this year.
This practice of “clawing back” executive awards has been within the power of federal regulators. However, it was rarely tried because typically, it required a criminal conviction – or at least the serious threat of one. However, it’s likely that this move by Wells Fargo is going to prompt other companies to think about doing the same. Reforms passed in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 asks for stronger clawback rules. Right now, the Securities and Exchange Commission is fielding public commentary on setting some new rules on the practice. If those new rules are finalized, the agency could force clawback action in many more cases beyond what constitutes as obvious, deliberate fraud. Negligence resulting in restated earnings could also prompt clawbacks. Continue reading