US banks face 'golden parachutes' challenge

Investors are set to challenge some of Wall Street's biggest banks on their "golden parachutes," which can see top executives pocket millions of dollars before taking jobs in government.

AFL-CIO, America's biggest trade union federation which manages $94bn in assets, will begin a campaign against the practice at Citigroup's annual shareholder meeting on Tuesday. 

Citi is among a handful of big banks allowing government-bound staff to cash out of incentive programmes by accelerating the vesting of their stock awards.

Critics argue that such benefits - which do not apply to people quitting for other jobs in the private sector - have ensured a succession of financial insiders in senior policy positions and deferential treatment toward Wall Street.

Last month AFL-CIO lodged a proposal asking the board to identify which executives stood to gain, and by how much, if they resigned to enter public service.

"It is not in shareholders' best interests to pay talented employees to leave - unless there is some explanation [for them joining government] that makes folks uncomfortable," said Heather Slavkin Corzo, director of AFL-CIO's office of investment.

She added that several big institutional investors had privately indicated support for the proposal. AFL-CIO will put similar proposals to the shareholder meetings of Goldman Sachs, Morgan Stanley and JPMorgan Chase in coming weeks.

"Even if we get less than a majority, we'll be sending a really strong message to the company," she said. "This is something that is really important to investors, and [the company] needs to take it seriously."

Citi has been a particularly rich source of state appointees in recent years, from Jack Lew, the Treasury Secretary, to Stanley Fischer, vice-chairman of the Federal Reserve.

In June 2013 Michael Froman, the current US Trade Representative, told the Senate that he received more than $4m in exit payments from Citi when he left to join the Obama administration four years earlier. Mr Froman had joined the bank in 2001, having served as chief of staff under Treasury Secretary Robert Rubin, a Citi director from 1999.

The handouts received renewed attention in December when Antonio Weiss, a former banker now serving as a counsellor to Mr Lew, acknowledged that he would walk away from Lazard with up to $21m in unvested income and deferred compensation.

ISS, the influential advisory firm, has recommended that shareholders support the AFL-CIO proposal, which is non-binding. It described "windfalls" after voluntary resignations as "unseemly," and running counter to a "pay for performance philosophy."

Citi's board says that shareholders should reject the proposal, on the grounds that spelling out potential rewards would not provide "meaningful" information, might violate the privacy of employees, and could put the bank at a competitive disadvantage.

A Citi spokesman said that more than half of the 15 employees currently covered by the policy are in non-government jobs, working in the education and charitable sectors.

The bank's annual meeting will be held in New York on Tuesday.

Regardless of the outcome of the votes, there is a groundswell of opposition on Capitol Hill against these "pernicious" practices, said Michael Smallberg, a Washington-based investigator at the Project on Government Oversight, a non-profit watchdog.

"Congress should take a hard look, and consider whether they are better served by prohibiting the awards altogether," he said. "We need to determine whether there is real public value in allowing employees to cash out early, or whether it encourages unhealthy cosiness between banks and their supervisors."

Additional reporting by Stephen Foley

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