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Windfalls for Wall Street executives taking jobs in government
By Susanne Craig
The New York Times
Thursday, March 21, 2013
http://dealbook.nytimes.com/2013/03/21/financial-windfalls-for-wall-st-e...
People usually say they go into government to perform public service. If they came from Wall Street, however, their former employers often provide another service.
Banks, including JPMorgan Chase, Goldman Sachs, and Morgan Stanley, all have provisions that allow acceleration of payments owed to senior executives if they take government jobs, a new study finds.
Such a benefit was highlighted recently during the confirmation hearing for Jacob J. Lew as Treasury secretary. His previous employer, Citigroup, had guaranteed him preferential financial treatment if he were to leave to take a job in the government. When Mr. Lew left Citigroup he held stock that he could not immediately cash worth as much as $500,000, according to a government filing.
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"These companies seem to be giving a special deal to executives who become government officials," says the study, to be released Thursday by the Project on Government Oversight. "In exchange, the companies may end up with friends in high places who understand their business, sympathize with it, and can craft policies in its favor."
The study looked at the compensation policies of several financial institutions.
The accelerated vesting of Mr. Lew's shares is part of a larger debate on Wall Street and in Washington, where people frequently move back and forth, creating concern that government officials may favor their old colleagues on Wall Street.
The debate has heated up recently as top officials from the Securities and Exchange Commission leave for new jobs, possibly on Wall Street, while the White House has nominated Mary Jo White, a lawyer who has represented Wall Street firms, to run the Securities and Exchange Commission.
Some Wall Street insiders contend that time spent on Wall Street does not compromise someone like Mr. Lew or Ms. White, saying that the experience sharpens their instincts and helps them understand how business actually works.
Firms that have contracts that provide for special treatment for employees who decide to go into government typically say it is intended to encourage public service, not to curry favor. The firms also note that employees on Wall Street and elsewhere are often required by law to sell their shares to avoid potential conflicts of interest and are limited in the amount of contact they can have with their former employer. The issue is simply more pronounced on Wall Street because executives are often paid in shares that vest over several years, rather than just cash.
One person who has gone from Wall Street to government who asked not to be named because of a policy at his workplace prohibiting employees from speaking to the media said he sold his stock at a depressed price for a job that paid millions of dollars less than what he was earning.
"I went into government because I believe in public service, not to help Wall Street," he said.
Mr. Lew worked at Citigroup from 2006 to 2008. Under the terms of Mr. Lew's contract with Citi, he kept certain bonus compensation if he left for a "high-level position with the United States government or regulatory body" but not for a private-sector competitor, said people with direct knowledge of the contract.
A Citigroup spokeswoman said it "routinely accommodates individuals who wish to leave the firm to pursue a position in government or nonprofit sector."
Other Wall Street firms have compensation plans with language similar to Mr. Lew's. They do not provide for a bonus for government service but rather allow for special treatment of compensation that has already been granted but not paid out.
On Wall Street employees are often paid in the form of shares that they cannot cash for years. These contracts allow the employees to cash the shares early. If they were leaving for a rival firm, however, they would most likely forfeit that compensation.
In recent years dozens of people have left finance to work for government.
Thomas R. Nides, for example, left Morgan Stanley in 2010 to join the Obama administration as deputy secretary of state for management and resources. He sold shares of Morgan Stanley at the time, disclosing to the government that the firm allowed him to cash out his shares ahead of schedule.
Mr. Nides, who received at least $5 million because of a stock acceleration, recently left government to return to Morgan Stanley as vice chairman. A Morgan Stanley spokesman declined to comment on the issue.
At Goldman, at least one of its compensation plans allows for a lump sum cash payment for certain stock grants that have been awarded but have not yet vested, according to a regulatory filing.
At least one of its former executives, Robert D. Hormats, received special financial treatment on some of his holdings, according to a government filing. Mr. Hormats, under secretary of state for economic growth, energy and the environment, wrote to the government upon taking that position that "Goldman Sachs will accelerate and pay out my restricted stock units, pursuant to written company policy."
Those payments are allowed. In 1990 the Supreme Court ruled that Boeing was within its rights to make lump-sum severance payments to several employees when they quit Boeing to take senior military posts.
The Project on Government Oversight says the rules governing executive sales of stock were tightened in 2004, as a response to the collapse of the energy company Enron. In the weeks before filing for bankruptcy, Enron had paid out millions of dollars in accelerated payments to senior executives. Now it is much harder for companies to speed up stock payments, but there is a government service exemption that allows for some leeway.
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