Here’s another way it is financed. From New Republic:
…Antonio Weiss, the former investment banker at Lazard now serving as counselor to Treasury Secretary Jack Lew, acknowledged in financial disclosures that he would be paid $21 million in unvested income and deferred compensation upon exiting the company for a job in government. Weiss withdrew from consideration to become the undersecretary for domestic finance under pressure from financial reformers, but the counselor position—which does not require congressional confirmation—probably still entitles him to the $21 million. The terms of the award are part of a Lazard employee agreement that nobody has seen.
These payments are routine at major banks, several of which have explicit policies, found in filings with the SEC, outlining automatic awards for executives who rotate into government. Goldman Sachs offers “a lump sum cash payment” for government service, for example.
Other banks’ policies are subtler. Banks often defer certain types of compensation in order to retain talent. When an executive terminates employment, unvested stock options and other forms of deferred compensation are usually forfeited. But several companies let executives’ equity options continue to vest if they leave for a government position, or allow them to keep retention bonuses that would otherwise be returned to the firm. A 2004 tax law banned accelerated payments but made an exemption for employees who leave for government service. Critics wonder whether the gifts are intended to fill the government with friendly faces who will act in their former employer’s interests.
“It fuels the revolving door between banks and the government,” said Michael Smallberg, an investigator for the Project On Government Oversight (POGO), whose 2013 report detailed these types of compensation agreements. The average executive branch salary is substantially less than these millions in awards, so the bonuses effectively supplement the lower pay, raising questions about who the government officials actually work for.
Citigroup is a serial user of these practices, if only because so many of its alumni serve in government. Jack Lew, Weiss’ boss at Treasury, had $250,000 to $500,000 in restricted stock vested after he left an executive position at the bank, part of a $1.1 million golden parachute revealed during the confirmation process. Stanley Fischer, currently the vice chair of the Federal Reserve, had a similar clause in his Citigroup employment contract. U.S. Trade Representative Michael Froman received over $4 million in multiple exit payments from Citigroup when he left for the Obama Administration.
Now, some of the large shareholders are objecting to this practice, and are facing opposition from the banks when they just try to find out who has received these perks. AFL-CIO has filed a shareholder proposal with the SEC, and all the big banks have requested exemption from this already:
Last November, Trumka wrote letters to seven mega-banks—Citi, Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, Wells Fargo and Lazard—asking their compensation committees to explain why giving incentives to executives for government service benefits shareholders or the company. The labor federation holds shares in many public companies through its pension funds. “We oppose compensation plans that provide windfalls to their executives unrelated to performance,” the letter states.
“We did not get much of a response,” said Heather Slavkin Corzo, Director of the AFL-CIO’s Office of Investment. So the federation decided to use their shareholder rights to file proposals, to be voted on at the companies’ annual meetings, seeking full disclosure of the golden parachutes, with the names of each executive eligible for the awards, and the amounts. “We wanted to get a sense of how prevalent the practice was before proposing an outright ban,” Slavkin Corzo said.
Of the four banks with explicit golden parachute policies (the others have discretionary policies on a case-by-case basis), only JPMorgan Chase has not asked the SEC to exclude the AFL-CIO’s proposal. According to Slavkin Corzo, Citigroup never so much as reached out for a conversation before filing the SEC request. The letter is dated December 19, 2014, just a week after a provision written by Citigroup lobbyists repealing derivatives rules in the Dodd-Frank Act passed Congress.
This explains one incentive of those leaving Wall Street to head to Washington.