Pay for senior jobs in big financial services firms consists of salary plus bonus, with the bonus being a large part of the total. If the employee stays at the firm, the bonus decision may be fraught with tension, but itâ€™s reasonably straightforward ethically: the bonus is intended to reward performance in the past and keep the employee working hard in the future.
If the person leaves, or announces the intention to leave, before the bonus is paid some year, the forward-looking justification for paying a bonus disappears, and the firm has to decide whether it wants, in effect, to hand the departing employee a gift, or instead cheap out and punish him for leaving. Thatâ€™s life in the big city; as a result, people are likely, if they have a choice, to wait until they have last yearâ€™s bonus in hand before announcing their intention to leave.
Now imagine that someone in such a job gets an offer to take an important post in one of the federal agencies whose actions influence the financial-services industry: the Treasury, or the Fed, or the SEC, and that the offer becomes public before last yearâ€™s bonus is paid. (People offered such jobs have very little control over the timing.)
Now the firm has a real problem. Presumably it doesn’t want to cheap out. On the other hand, if it pays a big bonus, it has just made a gift to an official whose decisions will help or harm the firm. Such a payment, even if fully justified by past performance, will have the appearance of a bribe. No such problem would arise if the person left to run the Ford Foundation or the Red Cross.)
So if a firm hires someone with a public-service background and ambitions to go back into government, it makes sense to negotiate a severance bonus up front, specifically in case the person leaves to take a senior Federal job. That way the person is protected against a big financial hit if such a job comes through â€“ otherwise he might want to take a different job now, one thatâ€™s not bonus-dependent or one where receiving a bonus wouldn’t create the appearance of impropriety â€“ while the firm avoids the problem of voluntarily either paying or not paying a big bonus to someone who will exercise power over it in the future.
That’s the deal Jack Lew negotiated with CitiGroup, and that Rupert Mudoch’s character assassins at the Wall Street Journal want to make a scandal out of. And yet Kevin Drum wonders what the innocent explanation for such a deal might be.
In fact, what would be hard would be inventing a guilty explanation. If Citi wanted to grease the palm of someone departing throug the revolving door, there would have been no need to make the deal in advance, or in writing. The only purpose of doing so would have been to avoid what otherwise would have been a confict of interest.
It’s pretty disappointing that Jack’s well-earned reputation for integrity not only doesn’t insulate him from cheap attacks from gutter press and the gutter Republicans, but doesn’t even protect him from having smart, decent people like Kevin accuse him of wrongdoing when â€“ to my eye â€“ none is present.
Footnote Jack is an old friend, but all my knowledge of the bonus deal comes from Kevinâ€™s post. The above isn’t based on any private knowledge; it seems to me like a perfectly straightforward reading of the situation.
69 thoughts on “Jack Lew’s bonus”
I suppose that there is a strong deontological distinction between “bribed at birth” and “bribed at transaction.” I have a hard time seeing the consequential distinction.
What justification is there for him getting the bonus only if he left for a high government position? But not if he left for any other reason? (Check out the bottom paragraph on page 2.)
He leaves to head a charity, no bonus. He leaves to head a government agency where he can do favors for his former employer, bonus. Yes, that is precisely a problem. He only got the bonus if he left for a position where he could benefit his former employer.
If they didn’t want it to stink, they wouldn’t have made it contingent on where he left to work. At most there might have been a non-compete clause, no bonus if he went to a competitor. But they didn’t, it was contingent on the job he left for being precisely the sort where he could help them.
So, don’t be obtuse, of course there’s something dodgy about this.
Because if he leaves to head a charity, he can arrange his departure to fall shortly after he collects his annual bonus. Did you read the post to which you’re apparently responding?
I read the post but merely because Mark says it’s impossible to time government appointments doesn’t make it so (as the current reshuffling demonstrates with people holding over until their successors are confirmed). Surely an opening to head a major foundation would present similar, and probably more urgent, deadlines. The fact that he only get the money if he goes into government (where he can do Citigroup some good) speaks volumes. It the bank’s way of making it easy for one of their own to go into government and protect Citigroup’s interest.
It’s a nice way of saying “here’s some money; don’t forget your friends and don’t forget there’s plenty more where that came from when you leave ‘public service’. I don’t know Jack Lew so I can’t say whether he is a good man or a corrupt man. But I do know he took the money. The question that needs to be explored is whether he’s giving Citigroup a good return on the investment.
You’re right. I mistook the less important point for the more important one.
The key seems to be avoiding the dilemma of either stiffing a guy who earned his bonus or giving a gift to a high government official. Locking the payment in advance removes that element. Some commenters claim to be puzzled that a gift freely given is any different from a debt that’s legally owed, but a moments thought should clear that right up.
The key , as was pointed out in the article and several times in these comments, is that they don’t need to guarantee his bonus in the event that he leaves to run the Red Cross because they don’t need to worry about the appearance of bribery in such a case.
It’s not bribery when you pay a man what you owe him, no matter what his job is.
But there is a crucial distinction that you are overlooking. The thing that makes the the bonus “legally owed” and not a gift is the particularly worded contract itself. It is only in the event of his taking a high-ranking position with the federal government that Citigroup must “pay Lew what they owe him”. If he leaves to do charitable work, they might pay him or they might not. So it is only when he leaves to take a job where he can be of service to his once and perhaps future employers that he is legally owed anything.
If the purpose of the advance agreement on the bonus was to avoid the ” impression of impropriety” involved in a payoff to a high government official when he leaves your firm and begins a job where he has the ability to do favors for his former employers, then why not simply say that he get the bonus if he leaves to take a important job running a charity? The answer, of course, is that Citigroup doesn’t want to pay Lew to leave and go to work for some bunch of do-gooders. Citigroup seems to have hired him in the first place (and apparently paid him exorbitantly) because it was likely that he was destined to return to government in the near future and they viewed the money as an investment in someone who would be able to deliver for them once he returned to government. I believe that’s why the bonus contract was structured to make it easier for him to return to government service and why he was promised nothing if he left to work for the public good.
And that pretty much explains the difference between those who extract their wealth from Wall Street (City/Bourse) and we poor schlubs out here in flyover country who actually have to work for a living and earn our salaries making things, growing things, taking care of the sick, etc.
Exactly. Left out of Kleiman’s analysis is why Lew has any right to both be a greedy whore and work for the government.
If he wants a government job, turn down the money. It is that simple.
You don’t understand. Davos Man is different.
Another thing that is different is the asinine argument down thread. Lord Murdoch’s vassals and Brent Bellmore getting their panties in a bunch about the revolving door in DC? That’s standup comedy with dirty nappies and a straight face…
Maybe so but can you challenge them on the merits? If not then perhaps some quiet introspection might be valuable.
You seem to be arguing that, if they really meant this to be a bribe, they wouldn’t have done it in public. The alternative explanation is that they just don’t care if people who can’t do anything about it see them bribing Lew, because they know that the people who can do something about it, won’t.
So the advantage of written contracts over verbal dominates.
Seriously, what non-stinky justification is there for not giving the departure bonus out if he takes a job with the Red Cross, rather than with a regulator where he can do his former employer favors? You can’t justify that contingency based on the bonus being for performance in the job, because it hinges on what he does *after* the job. Why should they give a damn whether he works, after he leaves them, for the Fed, or the Peace Corps, so long as it’s not a competitor?
No matter how you parse it, it looks bad.
Did you not actually read Mark’s post? Because you seem to be completely missing the point.
Mark’s argument is that Citigroup would have no problem paying one of their executives a year-end bonus if they left to work for a charity or whatever. They don’t need a rule to formalize that; they’d just do it.
The “concern” is that if an executive left to work for the Federal government and Citigroup decided to give them a chunk of money, it would look like a bribe. One solution would just be to not give any bonuses to executives who leave Citigroup to work in the Federal government. Apparently, though, the Wall Street culture treats year-end bonuses as something akin to one’s firstborn children, so the prospect of taking them away isn’t acceptable. So the alternative solution is to have a corporate policy saying that *all* executives who leave to work for the Fed will automatically get their year-end bonus. There’s no need to have such a policy for United Way or whatever because no one would accuse Citigroup of trying to bribe United Way by paying their former executives a year-end bonus when they leave to work for United Way.
Is that reasonable? I have no idea. I have no personal interaction with Wall Street beyond my measly little mutual fund contributions. But at least I can read and understand Mark’s argument.
Wow, if Brett’s ass were any redder from that spanking…
Anyway, to add a little bit to this, can I just say that since there’s a bonus culture, rightly or wrongly, it only makes sense that Lew would have a bonus? Despite changes, even entry level people get them, so it makes sense someone relatively high up like Lew would get one. And he’s going to be leading Treasury, not HHS, Education, or something like that. Which is to say, even if one thinks the bonus shouldn’t have been paid, it was pretty much going to be paid, because that’s how finance works (right now, anyway) and because Lew is going to lead a department that, you know, has some say over the finance industry.
I don’t think I’m confused about anything: They could have given him a bonus so long as he didn’t get a job with a competitor. They didn’t, they gave him a bonus only if he went to a federal position where he could do them favors. What justification is there for so limiting the bonus? If it’s a reward for work already done, why do they care where he goes?
If you don’t think that looks bad, you’re just morally color blind. A bribe doesn’t cease being a bribe just because you’ve got the gall to do it in the open, and write it down in a contract; They paid him extra to take a job where he could help them!
Lots of things look bad, but again, that’s why it was part of the contract from the beginning, as opposed to the end. There’s always an issue regarding potential corruption and regulator shopping and so on (and I am not saying Lew has anything spotty here, just to be clear), but generally speaking, you want people with varied experience, including in the private sector. Hands-on knowledge is always more valuable, even if it does give biases. And for a company, you have to offer certain compensation to be competitive, and that can often include a bonus of some type. If the person in question leaves for a job, do you not give him a bonus? Perhaps, although unless this is specifically outlawed, the competitive position will be to offer such a bonus. It’s just easier for the firm to deal with this up front, before any sort of wheeling and dealing might happen.
Consider the alternative. Citi’s in trouble, and Lew, for whatever reason, were picked to be Treasury Secretary or something else. If they have him a discretionary bonus as he left the firm, there’d be considerable uproar, and he’d be largely inhibited from doing the job. But since, rightly or wrongly, that’s part of the compensation in most cases, it’s better to deal with it up front and then move on.
Brett writes: They didnâ€™t, they gave him a bonus only if he went to a federal position where he could do them favors.
Still don’t get the whole “reading comprehension” thing, do you, Brett?
That’s the charitable explanation, the uncharitable one is that you’re deliberately inventing fake facts to support your argument.
Brett, is there a logical difference between the following two statements?
(1) If an employee leaves to accept a position in the government, then she will receive her end-of-year bonus.
(2) If and only if an employee leaves to accept a position in the government, then she will receive her end-of-year bonus.
You’re asserting that those two statements are identical.
J, I linked to the language in the contract.
“”Timing and conditions of guaranteed Incentive and Retention Awards:
Your guaranteed indenctive and retention award will not be paid, if before the date of the scheduled payment, you have voluntarilly terminated your employment ( other than for “Good Reason”, or to the extent specified below, as a result of your acceptance of a full-time high level position with the United States government or regulatory body) or you have been terminated by GWM for “Cause”…”
He got the bonus if he left for a position in the government, and not if he left for any other position.
Can’t really agree with you police work on this one J. I’m sure Mr. Lew is an upstanding friend/boss/mentor/etc of several posters here at RBC, which is great. And I’m sure that agreement was very carefully worded. The fundamentals are what matter, and to the ordinary USisn (which is what this Nation is supposed to exist for), it smells.
I think the issue here is that the term “bonus” is not totally accurate. The bonus Wall Streeters get is a normal part of their pay. If Lew had stayed at Citi he would have gotten a bonus in the normal course of business. Thta’s critical to understand. The next thingthta’s critical is that if he were considering leaving to work for the Red Cross he would normally wait until he had his bonus in hand before letting that be known.
The argument Mark makes is that with a government appointment the timing cannot be carefully controlled, so Lew is in danger of losing his bonus. Hence the special provision to guarantee him not an unusual payment, but rather to protect him against losing a normal one.
Let me add a speculation. If there were no such agreement in place, or if it also covered other things like the Red Cross, the reaction would be no different.
Those of us disagreeing with the line of analysis in the original post are aware of the basic structure of “bonus” compensation on Wall Street and also the various justifications that have been put forth concerning total compensation and the use of these “bonuses” in the financial industry from ~1980. We do understand and acknowledge your points; we just disagree where those points lead.
I’m going to side with Mr. Bellmore here. The entire point of conflict of interest,CoI reporting, and “appearance” regulations for government and public company positions is that 99.999999% of the US citizenry does not have a close personal relationship with the candidate. We can’t judge his integrity on a personal basis, and we shouldn’t have to in a functioning representative government (cf the recent discussions on Crooked Timber). Taking a bonus triggered by accepting a govt position regulating the bonus payer IS a conflict of interest and is seen as such by the 98.235% of USians who are not connected to Wall Street.
Median income of US family of four: 50,502
Wall Street executive facing criminal charges in wake of 2007/2008 collapse: zero
I am only commenting because I’m laughing so hard, at the absurdity of agreeing with Brett. But amazingly, I agree too! Pigs have flown. The logic of the dissenters seems to be, grift if public is not grift.
a bonus triggered by accepting a govt position regulating the bonus payer
It’s triggered by the employee taking any full-time, high-level position in the Federal government. Remember, Lew didn’t leave Citi to run the Treasury; he left to become Deputy Secretary of State. Treasury will be his fourth job in the Obama administration. Does the payment to Lew as he goes off to the State Department constitute a conflict of interest, or the appearance of one? To me, not particularly. But bonuses aside, I think anyone who has been a high-level executive in the finance industry will always and forever have a conflict of interest vis-a-vis the public interest.
I am only agreeing with Cranky. I refuse to believe I am agreeing with Brett.
I did read Mark’s post and I found his point to be different than what you think it was. If Citigroup really would be happy to pay the money if Lew went someplace other than government, then why not just say so instead of only giving him the bonus if he went into government where he could continue to serve Citigroup? But what Mark’s really saying is that even though it kind of looks like Tony Soprano agreeing to pay his lawyer a “bonus” for going to work at the Organized Crime Strike Force (assuming that Tony’s tame politicians can wangle the appointment for him), it should be okay for his pal Jack Lew because Jack’s really a great guy and the money really isn’t going to change him at all.
This is the same bullshit line I hear every time a crooked cop, judge or politician get caught with his hand in the cookie jar.
Since some people can apparently be duped by an advance deal, that appears to provide some incentive to make such a deal. And putting things in writing is often good business practice.
Putting a conflict of interest in writing, or working out a conflict of interest in advance, does nothing to mitigate that conflict.
J seems similarly confused. If this wasn’t a deal specifically designed to exploit a conflict of interest, then why wouldn’t they sign such a deal for folks leaving for, say, the United Way?
For the record, “Anonymous” above is me.
J seems similarly confused. If this wasnâ€™t a deal specifically designed to exploit a conflict of interest, then why wouldnâ€™t they sign such a deal for folks leaving for, say, the United Way?
Again, I am no fan of the culture of Wall Street, and am not arguing that Wall Street firms should be providing bonuses to Jack Lew or anyone else for that matter.
But the point of Mark’s claim is that there would be no apparent conflict of interest preventing Citigroup from giving bonuses to executives who leave to go work for, say, the United Way. They don’t need a written, automatic policy because Citi is perfectly free to give bonuses in that circumstance anyway.
In contrast, Citigroup doesn’t want to be in the position of making individual decisions about bonuses for departing executives who go to work for the federal government. “Jane, you’re leaving to work for the Treasury; here’s your $1 million bonus … John, you’re going to be heading up the National Endowment for the Arts; your bonus is $25,000.” Having a formal policy lets their departing employees get their bonuses without any individual decision-making.
Maybe Mark’s argument is wrong. Or one could certainly argue that it would be better for Citigroup etc. to just have a formal policy of withholding bonuses from employees who leave to work for the government.
It does seem like the best way to make an iffy situation acceptable, given that the bonus culture won’t be doing down any time soon.
Welcome to Afghanistan. Markets in everything, especially integrity. Seriously, just because there is corruption all around doesn’t make participating in it right. Neither does it magically get transformed into being acceptable because the guy with his hand out is your friend or your political ally.
Of course the whole “bonus” business is stinky to begin with. Bonuses aren’t extra pay for extra-special contributions. They’re just the way that high fliers get paid, even when their performance is sub-par or even detrimental.
From today’s NY Times:
The average cash bonus is nearly twice the median net worth of American households: Which is $66,000 plus some chump change.
This country is sick.
Mark, I fully comprehend your point and fully agree with it. But there’s something fishy samelling about Jack Lew’s OTHER bonus:
To me, the bigger scandal is the level of pay to which college administrators have become accustomed. From the article:
— At the time of his departure, Mr. Lew had been executive vice president at N.Y.U. He had typically earned $700,000 to $800,000 a year since his hiring in 2001, and sometimes more, according to the universityâ€™s tax records.
He also received mortgages of roughly $1.5 million through the school as a perquisite â€” $440,000 of which was forgiven by the university over time. —
WHAT? I have no doubt that this would be a six-figure job regardless, but to make significantly more than the President of the United States? That seems like an absurd amount of money.
At least this gives us an argument for higher tax rates.
Like so many others here, you fail to understand that people are happy to shower money on Jack Lew because he is a wonderful human being and because they know that their money will buy them nothing from such a paragon. Lew got the bonus from NYU not because it was paid from other people’s money and had the presence of mind to ingratiate himself with the people who control that pot of money and who might themselves hope one day to benefit from such largess but because he had done such a wonderful job that NYU wanted to make him a gift of taxpayer money so that he wouldn’t suffer at forgoing the huge fortunes that most academics are paid in comparison to the paltry amount he would earn at Citigroup. He got the both the big salary, stock option and bonuses from Citigroup because they felt he was destined for a high government position where he might selflessly serve the common good and not as an advance on future bribes to paid after he left government service.
NYU wanted to make him a gift of taxpayer money
Is there a new regime of pubic financing of private universities that I haven’t heard about?
My error. They wanted to make him a gift of their private, non-profit institution’s money as collected from charities, alums and students. Still pretty generous with other people’s money and that kind of generosity to university presidents and bigwigs is a bit galling.
I went to a private university and a private law school. I give every year. If either of those institutions ever made such a gift to a departing president, they’d never get another penny out of me. I doubt if I be the only refusenik. I would guess that if this gift to Jack Lew ever gets a lot of publicity, NYU’s board will be hearing from donors, students and alums. It’s just outrageous that a university administrator should get this kind of a golden parachute.
You may be aware of the Ben Ladner affair at American University in Washington. If not, there’s a pretty good write-up of it here:
In brief, Ben Ladner became president of AU and started spending the university’s money on himself on a mind-boggling scale–a new mansion, a new waterfall at the mansion, a car and driver, servants, a personal chef, first-class travel, hugely expensive hotels, extravagant parties for friends and family costing tens of thousands of dollars, lavish vacations, you get the picture. These things were charged to the university and not paid for out of his salary, which by the end of his tenure in 2005 had risen to nearly $1 million a year. At least when this came out it created a scandal and Ladner was forced out, but the Board of Trustees, riddled with his cronies, gave him a severance package of $3.75 million anyway!
I had a long association with American University, both academic and professional, and this just turned my stomach. Among the worst of it, Ladner insisted throughout that all the servants, the champagne, the caviar, and the general living large with the students’ money were merely his due.
You wrote, “Itâ€™s pretty disappointing that Jackâ€™s well-earned reputation for integrity not only doesnâ€™t insulate him from cheap attacks from gutter press and the gutter Republicans…”
I just read “Bailout” by Neil Barofsky and would like to know your impression, if any, of Tim Geithner’s integrity.
Federal officials are supposed to avoid not only conflicts of interest but the appearance of a conflict of interest.
But for me the real thing is that for people at Lew’s level, the money isn’t about personal comfort or even the comfort of one’s heirs or assigns. It’s about counting coup. He could have foregone that bonus without taking any kind of personal loss at all (except maybe a tiny loss in the more-macho-than-thou brazen-cupidity stakes, which would be counterbalanced in any case by the new job title.) So even if this isn’t really a bribe (and I think it’s not, because Lew is already as bought-and-paid-for as he’s ever going to be) it’s a sign that he is completely comfortable with the culture of personal greed that continues to drive the US into the ground.
(And yes, I have personal feelings about this, having once been privy to the discussions of serious lifestyle changes when a family member took a high-level government job that at the time paid less than being an academic. Public service should be service, not profit.)
But is it profit? For it to be profit, he’d have to have some sort of reward beyond what he’d get staying at the firm.
As I said earlier, I think the bonus is a sweetener to encourage their people to take jobs in government and also a reminder that there’s plenty more money for “team players” when they leave ‘public service’. Jack Lew would seem to be very much a team player whose reputation for integrity may not be as well deserved as Mark thinks.
So that’s how rich people’s compensation schemes work? If you don’t get paid the same amount for NOT continuing to work as you get paid for continuing to work, there’s something abnormal and wrong and you aren’t getting what you are worth?
Seriously, Fitzgerald was right. The rich are different from you and me. He’s not working there anymore. Which means he shouldn’t be receiving a cent from them. If he wanted more money, he should have stayed there. He’s trying to eat his cake and have it too.
“Public service should be service, not profit.”
I’m tired of seeing private sector sharks run circles around their opposite numbers in government. This idea that working for the good guys means you have to take a vow of poverty is short-sighted. You get what you pay for. In a better world, the enforcers at SEC would be using their deep pockets to poach the best talent from wall street. Set a thief to catch a thief.
I have no objection to raising pay for cabinet members.
But they aren’t living in poverty now either. Lew is a rich man. If he is too greedy to give up a bonus that creates an appearance of impropriety, he is unfit for government service no matter how much Kleiman likes him.
Beyond Dilan’s point (which I agree with), I would very much agree that government employees should be much better paid. On the other hand, allowing organized criminals to pay their employees bonuses to join the police force, with the implicit understand that there will be vastly more money to come when the former employee leaves the police force, pretty much ensures that the police won’t be catching many organized criminals.
Oh, I agree with this. And certainly times have changed. My point isn’t so much about vows of poverty as about the idea that it really does leave a bad odor when your agent squeezes every last dollar out of your private-sector employer on the way to your (almost certainly temporary) public-sector gig. The profit here is coming from the private-sector side, which is particularly worrisome.
If I were king, public-sector employment would pay very decently, but it would also come with the kind of perks that would make a post-government private-sector gig unnecessary or even undesirable. Not sure what those perks would be, but their effect would be to insulate the holder from today’s winner-take-all society until such time as it can be dismantled.
I prefer Glen Reynold’s proposal: An extremely steep tax on any income a person leaving government service gets above what they were making before they entered public service. You make $100K a year, take a job with the government, leave, and resume making $100K a year, ordinary tax rate. You make $100K a year, take a job with government, leave, and are suddenly earning $400K a year? Congratulations, for the next ten years you’re making a gift of $299K a year to the treasury!
Anyway, the striking thing about this particular case is that they didn’t even feel the need to obscure things any. They could have just made the bonus payable so long as he didn’t leave for a competitor; That would have been facially reasonable, since that’s the limit of their legitimate business interest in what he does after he leaves them, and a bonus like this is supposed to be a reward for work already done. A simple verbal understanding that they were really paying him for his future service in government would have sufficed.
But they didn’t think they had to hide what they were doing. So the advantage of having everything in writing prevailed.
And I think Mark demonstrates why: He’s joining a Democratic administration, the Republicans have no power to do anything about it, and the Democrats are committed to seeing no evil in the executive branch for about 4 more years. So why should they hide the bribe?
[i]I prefer Glen Reynoldâ€™s proposal: An extremely steep tax on any income a person leaving government service gets above what they were making before they entered public service. [/i]
This is the Glenn Reynolds who works for an arm of the government of the State of Tennessee, yes? Its state university? Can’t wait to see him stick to his principles and turn down any pay raises if he ever leaves for private employment. In fact, I bet he turns down all outside sources of income based on this principle, right?
Anyway, I’d just like to remind everyone that Brett Bellmore has stated time and time again, on this forum and others, that it’s government that holds the upper hand in all relationships; and that companies don’t bribe government, government extorts from companies. He’s called the regulatory environment a protection racket, and stated directly that it’s akin to the Mafia.
“But hey! Here’s an opportunity to smear Democrats! Forget all that other stuff I said! I don’t actually have any principles!”
There’s an interesting implicit assumption here, namely that people don’t gain any useful experience in government jobs other than an address book and a knowledge of dirty secrets. Maybe we should extend that to the private sector: any time you get a new job with a higher salary, you have to pay 75% of your increased earnings to your former employer.
You could actually do this kind of thing in a meaningful way by comparing government pay to pay for similar responsibilities in the private sector, and then looking at any bonus for being a high government emigre. But that would be data.
Mark is too kind on the advertised premise of the bonus culture: “the bonus is intended to reward performance in the past and keep the employee working hard in the future”. We are asked to credit that the tasks Wall Street asks high-level employees to perform are so unappetising, or the recruits so cynical and lazy, that a good basic pay isn’t sufficient to get them to actually work once they have arrived at the office.
The theory is particularly implausible in the case of Mr. Lew. He has held down two of the most life-shortening, highest-stress jobs in the federal government: Director of OMB (probable base pay $199,700) and Chief of Staff at the White House (base pay $172,200), and is auditioning for a third, Treasury Secretary (base pay $191,300). Nobody takes on these jobs for the money. The best that can be said for the pay deal is that’s it’s like working at a research station in Antarctica: there’s no way of spending your pay so you can save it all.
But in today’s world, it’s also fair to say that nobody takes on those jobs without an awareness that there is a vast amount of money to be made by “team players” after leaving those jobs. Look at all of the people who have gone from ‘government service’ into Wall Street and become fabulously wealthy. The “bonus” (or advance bribe) is designed to allow the recipient to live well in his high profile government job and also to remind him who his friends are and how generously he will be treated when he returns to the fold. Unless you really are saying that Davos Man is different (especially if he’s a friend of a friend).
Would it be too much to ask to get Mark to, you know, actually read the damn agreement, or at least the three pages that have been made available, before assuring us that his dear friend is above reproach. Because he’s a dear friend and a Democrat, so what’s wrong with being rich and getting paid for doing nothing.
Lew’s contract with Citi guaranteed him a bonus of $1 million per year. Guaranteed. But there was a catch: he had to be employed at the time the payment was made to receive it. If he announced his intention to leave before then, he’d still get it. (That’s why you read the contract.) The amount will, per the contract terms made publicly available, be paid not later than March 15 of the year following the year to which the bonus relates.
But there’s an issue for those in Lew’s position: What if Citi gets all their hard work and then fires them? Or they die? Or changes the terms of their employment to induce them to quit (by, e.g., moving Lew’s job to Mumbai, or Jacksonville)? The agreement address that in the customary fashion, providing Lew the usual assurance that he will be paid even if he’s fired (unless he’s done something wrong, and not just incompetent), even if he dies or becomes unable to work due to disability, and even if he quits because he’s commuting to Florida and just can’t take it anymore.
The agreement then does something else: it says that Lew’s quitting to work for the federal government is just like being fired. And that’s what the controversy is about, because voluntarily taking a new job isn’t something someone needs contractual protection for. And that Citi doesn’t ordinarily provide. More, I’m guessing that Citi doesn’t ordinarily pay amounts it isn’t contractually obligated to pay to other departing executives, because that would be a waste of corporate assets in most cases.
In any case, we know that Mark’s a joker on this:
when excepting a post to high public office perception is often as important and sometimes more important than the underlying facts. In this case there is a clear revolving door. These guys go in and out of public service from positions where they can clearly benefit their firm. The problem is that over and over and over again these saints of wall street have in fact
used the power of their public office to benefit their firm. The examples are varied and many. In short these guys are the post children for conflict of interest. They should be bared from returning to a firm which was effected by their public office for at least 5 years. In my opinion these scumbags give every appearance of being crooked through and through. Of course we will never get the opportunity to find out because it is their gohorts in crime that occupy the enforcement agencies within the government the should be putting them behind bars. Of Wall Street, for Wall Street and by Wall Street and the public be damned.
If you look at where Citigroup makes it money, a high-level â€œfriendâ€ at State would be worth nearly as much as a similarly situated â€œfriendâ€ at Treasury or the White House.
But the main point here is the revolving door culture between government service and Wall Street. As a practical matter, Jack Lew had very few skills that related to Citiâ€™s banking or finance business. What he had was connections and a very good likelihood of a high-ranking job in a future Democratic administration. Thatâ€™s why he was paid a huge amount of money in the first placeâ€”-as an investment in someone who could be an asset to them if he returned to government even though he wasnâ€™t a banker, trader or had skills related to the banking world.
And Citigroup went out of its way to encourage Lew to return to government service by ensuring that he wouldnâ€™t have to make an economic sacrifice. Remember, he gets the bonus for returning to a high-level position with the federal government (where he can be of service to Citigroup) but not if he goes to work for, say, Habitat for Humanity or Red Cross.
The implication is pretty clear: No matter how fancy your past titles might have been, it was Wall Street that made you rich. When you returned to government, we ensured your comfort at levels far above the lifestyle of a man who had to life on the pay of even a high-ranking government employee. And wait, there’s more. If you remember who your friends are, thereâ€™s a great big pot of gold waiting for you when you leave government service. Robert Rubin got over $100 million when he left the Treasury because he never forgot who his friends were and who was buttering his bread.
Do you really want people with that kind of incentive system working in government? Running the Treasury? I donâ€™t and, supposedly, Obama didn’t either.
I don’t disagree with you, and in fact obliquely made something like the same points you make. I was correcting the obviously incorrect assertion that Lew left Citi with a wad of cash to work for a government agency that regulated Citi, which he didn’t do. As I said above, anyone who has held a high-level job in the financial sector will always have a conflict of interest when it comes to the public interest. I’d rather that no one with such a background ever hold any kind of major policy or regulatory position in the government. That damned socialist Obama sees things differently. It is perhaps ironic that Tim Geithner, for all his manifold faults, never held a position in any for-profit company in the financial sector.
anyone who has held a high-level job in the financial sector will always have a conflict of interest when it comes to the public interest
True enough, but that misses the two points here:
1. You have a bigger conflict of interest when a company that benefits from government policies pays you a gigantic bonus if you take a job in government.
2. There’s no particular reason why we want greedy rich people who refuse to give up big corporate paydays working for the government at all.
Tim Geithner is a good case in point (and one with remarkable similarities to that of Jack Lew). He made sure to ingratiate himself with the right people on Wall Street and they made sure to keep his career humming right along, ever upwards until he reached the top where he amply repaid them. Do you have any doubt where Geithner’s next stop is going to be? The only question is whether his pay day will be as big as that of Robert Rubin.
I also seriously doubt that when Jack Lew leaves office he’s going to take a nice teaching position back at NYU and walk away from the tens of millions that he can expect if he plays ball with Wall Street.
Nevertheless, each of the federal jobs he’s held since leaving Citi was important to the bank’s profitability. Not only does Citi actually do a huge amount of business outside of the United States, its profitability is critically dependent upon American intervention with foreign governments on Citi’s behalf to head off regulations (such as increased capital requirements and prohibitions against gambling with taxpayer insured money). When, for example, the EU proposed to regulate “to big to fail banks” to try and prevent a repetition of the crash of 2007-2008, it was the Department of State along with Treasury and the White House that took the lead in pressuring the EU not to rein in the big American banks.
We don’t know what Lew’s role was in that affair but it should certainly be a topic of a very serious inquiry, along with finding out what he’s been doing in the White House and also trying to find some legally binding way to prevent him from going back to work for the banksters when he leaves office.
There is nothing more bizarre than the absolute antipathy towards people in industry becoming regulators. Yes, there can be perverse incentives. But I also want someone who know’s what they are regulating to be regulating it. That is common sense.
Your version of common sense seems to be at war with the common human experience. If you allow the regulated to select their regulators, pay them a bribe when they take the job, and then pay them even more lavishly when they return to the fold, you shouldn’t expect much in the way of effective regulation in the public interest. The objection isn’t to having people move from regulated industries to become regulators themselves but rather at the prospect that they are taking the job with an eye on future advancement with the former employer rather than regulating in the public interest.
The era of decent people leaving their jobs to work in the public interest regulating their former employers ended sometime in the middle of the Reagan administration, if it ever really existed at all. To put it charitably, every lawyer at the SEC knows that he or she has the ability to cash in by moving to the private sector and he or she also knows that the ability to have a successful post-SEC career depends on being a “team player” and being on good terms with the major players on Wall Street. Even for basically honest SEC lawyers, it’s hard to risk your family’s future fighting against corruption and it’s too easy to just not rock the boat. If we don’t find a way to close the revolving door between industry and government, we are in severe danger of finding ourselves with a government that simply can’t function at all because of corruption. That is to say, we could easily become China or Mexico.
But Mitch Lew hasn’t gone back yet. In fact he has been a public servant for his entire life, working his way up from
humble begginings, before his two year stint at bean counting at CITI. Lets see the revolving door when it actually turns, because it hasn’t yet.
You may be aware that he was paid exorbitantly Citigroup for what appears to have been a fairly minimal amount of “bean counting”. It is my impression (strongly reinforced by the guarantee of a seven-figure payout if he could land a high-level federal job) that Citi was basically making an investment in the future, much as organized crime once groomed suitable men for public office and aided their advance through the ranks of New York, Boston or Chicago politics and policing. Banksters strike me as even less big-hearted and civic minded than their more traditional gangster brethren so one must ask what prompted this supposedly philanthropic payday to a hard working public servant?
He hasn’t gone back yet because he’s about to get the government job with the absolute best payoff when he does return to the private sector. Robert Rubin made over $100 million when he returned to the private sector. There are a great many people from previous administrations and the Obama administration who left “public service” for huge payoff on Wall Street. I just don’t believe that the knowledge that he’s in line for a giant payoff if he plays his cards right, hasn’t crossed Jack Lew’s mind.
The question in my mind is why we allow such an obviously corrupt relationship and why do some people defend that revolving door.
The way Tim Geithner went after the Wall Street bezzle of 2000-2007 like a pit bull once he took over Treasury? Personally opened up the skeleton closets for the criminal investigators and then escorted his former coworkers to jail himself?
I agree that there *could* be a benefit to having a regulator who knows where the bodies are.
Maybe the way to solve this problem is to make it so the regulators can never go back again afterwards. Then at least we might hope that they won’t get the vapors. I have to mention again our primate natures. Rich people are very powerful, it is completely natural to be afraid of them and want to do what they ask, consciously or subconsciously. There’s no point trying to hide ourselves under the bed. I would be more surprised if one of these Treasury guys didn’t have the vapors.
Comments are closed.