(First published on LinkedIn)
At first glance, it looks as though Wells Fargo and the two responsible executives are getting their day of judgment.
The bank is paying $185 million to settle charges for the 2 million fraudulent customer accounts. CEO John Stumpf is forfeiting $41 million in compensation and the head of the guilty division is giving up $19 million of stock awards plus $34 million of unexercised options. A group of former employees are suing the company for $2.6 billion and the state of California just suspended much of its business with the bank.
But who really suffers once the dust settles?
Not CEO John Stumpf
Sure, forgoing $41 million seems like harsh punishment, especially to the average lead teller who makes $30,000 per year here in Charlotte. But that’s only 16.5% of the total amount Stumpf could walk away with if he left the bank tomorrow because of the 5.5 million shares of Wells Fargo stock he already owns (at $45/share). As for the compensation he received for years to award his performance WHILE the fraud was happening? Well he gets to keep that.
Did I mention that Stumpf sits at the head of the Board of Directors that approves his own compensation?
Not Carrie Tolstedt, the Head of the Guilty Division
Even after forfeiting $19 million, she could still walk away from the mess with $77 million.
But the Shareholders
Only a minority of shareholders includes culpable company executives. All other shareholders – both sophisticated investors like Warren Buffet and average hardworking 401(k) contributors and everyone else in between – get to foot the bill for whatever penalty is levied or settlement is reached. Wells Fargo stock is already down by $5 since the scandal hit, and there’s no telling how it’d do as the situation continues to unfold.
And the Average Employee
Wells Fargo employs 265,000 employees, I have no doubt that the vast majority of whom are upstanding individuals, including many of my friends who work for the company. Inevitably, as the company sinks funds into fighting lawsuits while trying to keep its stock price afloat, it’d have to tighten its belt in other areas. Which means layoffs. Good employees end up losing their jobs, and those who keep their jobs get to do all the extra work left behind, for no additional pay.
And the Employees Who Were Fired
When an employee gets fired, he walks away with $0. Which is INFINITELY worse than the $250 million that Stumpf could walk away with, both mathematically and experientially. Being fired inevitably makes it harder to find another job. Multiply that by 5,300, then again by the number of family members affected, plus the ones who got fired for blowing the whistle, and the economic impact this has on the economy can be exponential.
If this sounds like a rant, it is.
For those who wish to read more:
http://money.cnn.com/2016/09/27/investing/wells-fargo-ceo-clawback-john-stumpf-tolstedt/index.html
