Citigroup is one of three Wall Street banks attempting to keep hidden their practice of paying executives multimillion-dollar awards for entering government service. In letters delivered to the Securities and Exchange Commission (SEC) over the last month, Citi, Goldman Sachs and Morgan Stanley seek exemption from a shareholder proposal, filed by the AFL-CIO labor coalition, which would force them to identify all executives eligible for these financial rewards, and the specific dollar amounts at stake. Critics argue these “golden parachutes” ensure more financial insiders in policy positions and favorable treatment toward Wall Street. 

“As shareholders of these banks, we want to know how much money we have promised to give away to senior executives if they take government jobs,” said AFL-CIO President Richard Trumka in a statement. “It’s a simple question, but the banks don’t want to answer it. What are they trying to hide?” 

The handouts recently received attention when 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.

A template of Citi’s compensation policy, filed with the SEC, states that executive stock options continue to vest in the event of a “Voluntary Resignation to Pursue Alternative Career,” including a government job. But Citi’s agreement does not specify which executives are eligible.

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.

The SEC oversees the shareholder proposal process, but in a strange, passive-aggressive fashion. A rule dating back to the Securities and Exchange Act of 1934, Rule 14a-8, defines how a proposal can be placed on the ballot. Corporations use all sorts of well-honed arguments to disqualify proposals from a vote under Rule 14a-8. Then they send a “no-action” letter to the SEC to get clearance to exclude the proposal. “The company requests that the SEC will not take any enforcement action against the company if they don’t put the proposal on the ballot,” said Slavkin Corzo. “It’s a bizarre intermediary world that has built up around the entire process.” 

Citigroup’s no-action letter essentially argues that they “substantially implemented” the proposal already, a key provision in Rule 14a-8. They claim that disclosure of their equity award agreement with the SEC does the job, and since its named executive officers have their unvested awards disclosed elsewhere, there’s no need to duplicate the request with an additional report. They also deny the existence of golden parachutes, arguing that these officers would receive the same treatment no matter how they left the company, as long as it wasn’t for a competitor. 

But, as the AFL-CIO’s response states, though the shareholder proposal requests the names of all “senior executives,” Citigroup wants to narrow the playing field to merely “named executive officers,” which for them would only be five people. Citigroup wrote in a footnote in their no-action letter that they “interpreted the phrase ‘senior executives’ to refer to its named executive officers,” which the federation believes varies from the SEC’s definition of senior executives. Jack Lew and Michael Froman, who received golden parachutes for government service, would not fall under this named executive officer standard.

Later in the no-action letter, Citigroup actually cites an article by New York Times columnist Andrew Ross Sorkin, celebrating the golden parachute payments as a way to “encourage public service,” as part of their argument. “The piece is nothing more than an opinion,” the AFL-CIO responds, and “irrelevant to the standard set by Rule 14a-8.”

No-action letters from Goldman Sachs and Morgan Stanley argue mostly the same thing, that they have substantially implemented the proposal already and that the golden parachutes don’t exist. Corporations frequently build on each other’s no-action letter arguments. “If it works, they do it more and more, and broaden the scope of what the commission will kick out,” said Slavkin Corzo. 

Though the SEC values corporate disclosure, according to Slavkin Corzo, it has leaned more in favor of corporations over shareholders on these requests. A 2013 Project on Government Oversight report found that SEC alumni often represent companies trying to kick shareholder proposals off the ballot. For example, Martin Dunn, a 20-year SEC veteran who worked for the division that decides on no-action letters, became a corporate lawyer for O’Melveny and Myers, and repeatedly obtained favorable rulings from his former employer on behalf of Alaska Airlines, Yahoo, UnitedHealth Group and JPMorgan Chase.

The SEC will make a ruling on the no-action letters sometime in the next couple months. “It would be really unfortunate if shareholders are not allowed to get basic information about what’s being done with their money,” said Slavkin Corzo.

If stymied on disclosure, action could move to Congress, with legislative action to ban these windfall payments that make the revolving door more attractive. “At a time when people are worried about the over-representation of Wall Street in policymaking positions, we see that the revolving door is baked into the compensation structure,” said Michael Smallberg of POGO, “It’s worth considering whether these provisions should be banned altogether.”