By Spencer Mann
Money and Investing Writer
In a company-defining series of months, Wells Fargo (NYSE: WFC) has begun to see the fruits of their actions related to a scandal in which it just forked over $185 million to the federal government in an attempt to settle the matter.
This scandal stems from illegal, fraudulent business practices in which the bank created around 1.5 million deposit accounts and almost 600,000 credit card accounts for customers without their knowledge or consent.
These customers were subsequently charged various fees, stemming from these new accounts.
According to the company, 5,300 employees have been fired in relation to this incident.
However, that does not appear to be just enough for many.
Since the discovery of these practices, Wells Fargo has been under a storm of pressure by its own customers, investors, and the federal government alike.
A lot of this pressure is surrounding bank executive Carrie Tolstedt. It was her division in which much of the wrongdoing occurred.
As of July she has left her position as the Senior Executive Vice President of the Community Banking division, with plans to fully retire by the year’s end.
A group of United States Senators, some of which are on the Senate Banking Committee, sent a letter to Wells Fargo discussing possible “clawback” of Tolstedt’s past compensation, among other bank executives. The letter notes that she received high annual rewards over a five-year span, totaling $20 million dollars.
In addition, the letter reads that her retirement will lead to “$125 million in stock options and restricted stock shares.”
The bank’s reasoning for the bonuses stemmed from “strong cross-sell ratios” in her division over this time period. Cross-selling in banking is when a customer opens up multiple accounts with the same bank.
This is exactly related to the activity that the bank is under fire for. While most American banks average less than three accounts per customer, Wells Fargo had a sales goal of eight accounts per customer. Wells Fargo does, however, have “clawback procedures” built into its policy which allows the bank to recuperate past salary or bonuses awarded due to fraudulent or irresponsible management.
On Tuesday afternoon CEO John Stumpf testified in front of the Senate Banking Committee.
When asked if he had “considered firing Ms. Tolstedt before she retired”, the answer was a simple “no”. Senator Elizabeth Warren points out that not only is this an issue of clawback for previous compensation, but awards of future compensation. According to Warren, had the bank fired Tolstedt instead of allowing her to retire at the year’s end, she would not be eligible for a large portion of her 2016 compensation and potential performance bonuses. Stumpf notes that “the board will consider” this year’s findings, but will not outline any possibilities.
Senator Warren finds this answer unamusing, bringing to light the fact that the company has already made changes to compensation policies for thousands of employees.
The Senator also noted that in its 2010 performance report, the bank stated that eight accounts per customer was a good number because “eight rhymes with great”. Perhaps the strongest statement during the twenty minutes of unrelenting interrogation is when Warren declared that the reigning CEO of Wells Fargo should be “criminally investigated”.
The pressure for Wells Fargo to make serious decisions regarding its executives and the possible clawback of previous compensation and bonuses has hit another level.
However, it remains unknown to what extent of actions will be taken, if any. While there will be investigation from multiple government agencies, it is unclear what will derive from it.
What is clear, however, is that Wells Fargo will not be sweeping this situation under the rug anytime soon.
A version of this article appeared in the Tuesday, September 27th print edition.
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