The Wells Fargo Board announced a clawback of $41 million from CEO John Stumpf.  Also $19 million from retail banking manager Carrie Tolstedt.  The Wells Fargo clawback is a first for a big-bank CEO.  Ms. Tolstedt agreed not to exercise options worth $35 million pending the outcome of the board’s internal investigation.   In summary, Wells Fargo fired than 5200 employees since 2011 due to employees opening fictitious accounts in the name of customers.  Paying $185 million in fines.  The Money Skinny™ article Wells Fargo Scandal – Fraud with Fictitious Accounts has details.  Recall The Money Skinny™ mission is to save you time and money.  Let’s look at what the Wells Fargo clawback means, executive compensation and what you can do about it.

Wells Fargo Clawback is not green money

A clawback is a return of money already disbursed.  The Wells Fargo clawback regarding Mr. Stumpf and Ms. Tolstedt is the forfeiture of equity awards.  Future vesting of stock options.  Not green money.  CEO Stumpf made $19.3 million in total compensation in 2015.  More than two years after this scandal was uncovered by the Los Angeles Times in 2013.  Overture Group LLC estimates the $41 million forfeiture is about a quarter of the amount paid to Mr. Stumpf during his thirty-five-year tenure at the bank.  How do you get to $165 million starting as a repo agent?  Ms. Tolstedt was paid more than $9 million by Wells Fargo in 2015.

Split the Chairman/CEO Role

Most major U.S. banks have combined the Chairman of the Board and CEO roles.  The congressional hearings illustrates some of the problems when one person has both titles.  Mr. Stumpf said clawback decisions are made by the board’s compensation committee.  He is not a member of the comp committee.  To clarify, the $19 million paid to Mr. Stumpf was negotiated by the compensation committee with CEO Stumpf.  The compensation committee is part of the Board of Directors of which Mr. Stumpf is Chairman.  Perhaps Chairman Stumpf is negotiating his exit with CEO Stumpf.  This feels like a circle-jerk on Reddit.

Different Situation with a Founder

In my opinion, a company founder or the developer of a new idea or process earning megabucks is a different situation.  My calculus is:

Founder Idea-Initiative-Risk-Work = Founder Reward  

The founder (founder’s descendants or early company steward) wants the Chairman and CEO roles.  Fine.  Both the founder’s vision as board chairman and management expertise as CEO can be beneficial.  That is not the circumstance at Wells Fargo or other major U.S. banks.  It is difficult to appreciate the stratospheric management pay scales of employees that broke through middle management.  The folly continues using bank holdings as a benchmark to push CEO compensation ever-higher.

Vote with Your Feet

How to respond to this morass of outrageous executive money and breach of trust?  Join a credit union.  A credit union exists for the benefit of its members.  Not shareholders.  Credit unions are insured by the National Credit Union Association.  Similar to a bank insured by the FDIC.  A credit union has lower fees.  Executive compensation at a credit union is a fraction of what banks pay.

Did you choose Wells Fargo?

Perhaps you were a Wachovia customer.  Now you’re a Wells Fargo customer.  The low friction solution was to stay put.  Changing banks is a time-consuming hassle.  However, bank management pay is rounded to the next millions of dollars.  Per person per year.  Concurrently, a Grandma from Pasadena has her identity stolen by a bank employee.  Plus she pays a $35 NSF fee when she bounces a check during a moment of confuzzlement.

Maybe you haven’t had issues with Wells Fargo.  An employee didn’t open a fictitious account in your name.  Your pocket wasn’t picked.  Consider this.  What is the source of the management millions?  Customer fees really add up.  That is from your pocket.  Why use a bank?  A credit union will save you money.  Stand up for Pasadena Grandma.  In summary, join a credit union.

• The Wells Fargo clawback regarding Mr. Stumpf and Ms. Tolstedt is the forfeiture of equity awards.  Future vesting of stock options – not green money.
• Split the Chairman/CEO role at major U.S. banks.
• Join a credit union.