Readers know well that I am of the view that more than a few senior people on Wall Street who should have gotten nothing, and in some cases, should have gone to jail, instead made off with princely sums.
But Citi’s half-baked remedy, of withholding the payouts of a few recently departed top dogs, is as bad a cure as the ailment. It’s arbitrary and ham-handed, almost guaranteed to elicit sympathy for the hapless few caught up in Citi’s sudden sensitivity to the possibility to negative public reaction. Funny how that didn’t stop the Sleep-Deprived Bank from paying out the (at the time) $40 million of goodies to former CEO Chuck Prince upon his departure (that on top of shares he already held then worth $53 million). The bank may have believed it had plenty of air cover, since Prince’s final payout was only 1/4 of that of departing Merrill CEO Stan O’Neal.
In fact, one has to wonder whether the ham-handedness is a feature, not a bug. Anyone in the moneyed or “sanctity of contracts” crowd will be up in arms.
And frankly, this “just say no” strategy is sheer laziness. Wall Street has a very lax culture as far as expense reimbursement is concerned. Producers and top execs (even junior staff) often put in for and have approved expenses that are not permitted under the official policy. For instance, when firms are doing well, if someone has had a few very late nights, they might charge a cab home on the day of a big deadline (say a board presentation) at 5:00 PM even though the official policy is that car service is reimbursable only after 9:00 PM. So scale that sort of thing up for top dogs (for instance, using one’s secretary to help with charities where one is on the board, Technically, that is personal, not firm business). So I imagine it would be a no-brainer for the vast majority of these guys to go over their affairs with a fine tooth comb to find abuses of official policy.
There would then at least be a basis for withholding payment, and then both sides could negotiate a settlement.
Given the amounts at stake, versus the not-high cost of the exercise above (frequently done to middle level people who have become inconvenient but the firm does not want to fire for various reasons), it seems clear that the capriciousness is intentional. Even people who are in favor of reining in the plutocrats will find it hard to support it. And the amount at stake is peanuts, too little to make any practical difference.
On the one hand, this could be the sort of ritual sacrifice that routinely occurs in large organizations. But it could also be an effort designed to prove that messing with severance payments is a bad idea. And if so, a Machiavel seems to have dreamed it up.
From the Wall Street Journal:
Citigroup Inc. has told about five former top executives that it won’t pay them tens of millions of dollars in promised severance payouts, according to people familiar with the matter.
The affected executives include Michael Klein, who was co-head of the New York company’s investment bank, and Kevin Kessinger, formerly in charge of operations and technology at Citigroup, these people said. Messrs. Klein and Kessinger both got lucrative severance packages when they left last year, including periodic cash payments.
Citigroup already has doled out more than half of the roughly $100 million it promised to the former executives. But company officials recently decided not to proceed with the remaining payments, concluding that they wanted to avoid even the possibility of a public backlash over the money,…
Citigroup has received $50 billion in taxpayer-funded capital…Government officials didn’t demand that the bank end its payouts…
Under the terms of exit agreements with the departed executives, Citigroup is contractually obliged to make the payments. But bank officials essentially are wagering that the former executives will conclude that it would be publicly embarrassing for them to file lawsuits against the struggling, taxpayer-backed company seeking the money….
Citigroup has been an especially aggressive cost-cutter. Since Chief Executive Vikram Pandit took over in December 2007, the company’s work force has shrunk by 18% to 309,000 from 375,000. Thousands of additional jobs are on the chopping block.
Company officials also are curtailing bonus and severance payouts, including by barring any senior executives who leave the company after March 31 from receiving most exit payments.
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I, too, am not impressed with this. Not, of course, because I feel any sympathy for the handful of cadres who have, at random as it were, been affected by this, but because of the ticky-tack, ad hoc nature of it, when what’s really needed is systematic justice for this entire gangland network.
As for what Citi is trying to do here, this sacrificial lamb/misdirection tactic is very common and hardly needs to consult Machiavelli.
Under the terms of exit agreements with the departed executives, Citigroup is contractually obliged to make the payments. But bank officials essentially are wagering that the former executives will conclude that it would be publicly embarrassing for them to file lawsuits against the struggling, taxpayer-backed company seeking the money…..
This is exactly the logic many of us had against the dubious notion that AIG was compelled to pay out all those bonuses. Whatever the so-called legality of it, I wanted to see who from AIG would have the guts to go public with his demands, if they were forced to sue over it.
So here they’re trying out that logic. They probably hope these guys will sue (and they probably don’t care if they win). The point is to try to make it look like they’re finally imposing some justice for some crooks. It’s also a variation on the “bad apples” fraud.
The goal is to simulate action, make it look like systematic reformatory action is not necessary, but rather that the system is sound except for some abuses.
And if, as Yves points out, even this conjures up howls of indignation from the right-wing whiners, that’ll add to the fraud that real action is taking place.
Of course nothing is really happening, except further entrenchment.
bigram bandit is true to shoddybank tradition of ignoring pacta sunt servanda
I’m not sure your cab ride example helped.
@cansarnoso said: bigram bandit is true to shoddybank tradition of ignoring pacta sunt servanda.
I would like to further your reference of “pacta sunt servanda or good faith” in all these matters (bond holders,pensions, health care etc) before us today.
I would like to use the principles of international law in reference due to its altitude in the application of law.
This principle can be translated by the following formula: treaties/contracts “are what the authors wanted them to be and only what they wanted them to be and because they wanted them to be the way they are”.
Now I would expand that with: A party is not authorized to invoke the provisions of its internal law/corporate policy as
justification for its failure to perform a treaty/contract to whit the only limit to the “pacta sunt servanda” rule is to be found in the notion of which emanates from the favor contractus principle/ jus cogens or as some camps put it “the natural rule of law”. I personally have seen big contracts ripped into shreds, right in front of the counter party if they did not comply with the revised “interpretation” of the contract by the favored party ie big dog/natural/survival of the fittest (not attributed to Darwin btw).
The application of law in these matters seems, to me, absolutely political and for political out comes only in a totally ad-hoc manner that politics always dictate.
Unnervingly today we have two favored contractual interpreters, Investment Banks and their captured law makers the Government.
In essence, anyone counting on the rule of law better check the political winds first or rue the day.
p.s. whom better to dance around the Constitution/Law than a President with a degree in it.
skippy…creatures of specific nature beware…genralist species have a much better chance of survival or anyone clutching their contract should prepare for burnt fingers as its hit with a blow torch.
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