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Encouraging Public Service, Through Wall Street’s ‘Revolving Door’
By ANDREW ROSS SORKIN
The boards of Wall Street’s biggest banks recently received a letter posing a provocative question.
Why, the letter asked, do banks routinely pay out special compensation packages to executives who leave to take government jobs when those packages were intended to retain them?
“Unless the position of these companies is that this is just a backdoor way to pay off a newly minted government official to act in Wall Street’s private interests rather than the public interest, it is very difficult to see how these policies promote long-term shareholder value,” the letter declared.
The letter, sent by Heather Slavkin Corzo, director of the A.F.L.-C.I.O.’s office of investment, has created a stir within the halls of banks and parts of corporate America. Ms. Slavkin Corzo appears to be preparing to go to war with the banks over the pay policy, already submitting proxy proposals to have shareholders vote against it at the annual meetings of Citigroup and Morgan Stanley, for starters.
But perhaps the A.F.L.-C.I.O., the nation’s main union federation, has it backward. Shouldn’t we be trying to encourage more public service? And shouldn’t other industries adopt similar pay practices to allow our most talented people from the broadest array of backgrounds to participate in government?
At issue is a long-running debate about the Wall Street practice of accelerating the vesting of restricted shares and deferred compensation to executives who leave for a role in government. Usually, executives who leave for another job elsewhere, or decide to retire early, forfeit such payments, which act as an incentive to stay and a penalty for departing.
But that isn’t the case for Wall Street executives who join the public sector or, in some cases, take jobs in education or the nonprofit world.
The issue — which some commentators have tagged as part of the revolving door problem between regulators and the industries they cover — moved into the headlines recently when Antonio Weiss, a Lazard banker who has been nominated for under secretary of the Treasury for domestic finance, disclosed that his firm would pay him about $20 million in stock and deferred compensation if he were to win confirmation. Mr. Weiss would not be entitled to that money if he were to leave the firm for a rival bank.
“It feels icky,” Ms. Slavkin Corzo told me about the compensation policy. “We are looking at this from a shareholder perspective,” she added, allowing that she’s “open to the other side. We are asking questions. They are fair.”
However, when I asked her if she could imagine an explanation that didn’t involve the equivalent of bribery, as she previously suggested, she seemed less open to other possibilities. “I’m highly skeptical that there is an alternative explanation that passes the smell test.”
While this topic may make for juicy headlines about the “revolving door,” the A.F.L.-C.I.O. and others seem to be deliberately overlooking important issues, and the entire debate appears to be based more on a populist shakedown than on good public policy.
Let’s start with a basic question: Do we, as a country, want our most highly qualified employees from the private sector to pursue public service?
The answer, I would imagine, should be yes.
Wouldn’t it be nice if all private sector businesses offered their employees the opportunity to pursue public service work — or work at a nonprofit or educational institution — without giving up income or other benefits that they may have earned? Of course it would be.
Well, that’s what the compensation policies of many of the firms in question do. Frankly, it should be encouraged more broadly.
Now, is it good for shareholders?
That’s debatable. Clearly, there are real costs. An employee who leaves generates a replacement cost. And the company is giving up compensation that it could otherwise keep.
But there are benefits as well, which may be a bit harder to quantify in hard numbers. Most of the companies I spoke to about the compensation policy said its purpose was simple: It helps to attract concerned people who may want the option to pursue public service work someday. While most executives will most likely never leave for the government, it helps instill a certain kind of ethos and culture to the firms.
For years, for example, Goldman Sachs has managed to recruit some of the brightest liberal arts majors from top universities, in part by being able to point not just to the work at the firm but to the former executives who worked in senior government posts later.
That’s not to say that altruism is ruling corporate or even employment decisions or that a revolving door problem doesn’t exist. It does.
There is real concern about so-called regulatory capture, with Goldman and Citigroup alumni long cited as prime examples. A certain groupthink has emerged from a steady stream of Wall Street alumni going to Washington. (Representatives for Goldman, Citigroup and Morgan Stanley declined to comment.)
Of course there will inevitably be some conflicts. We should certainly enforce rules that seek to prevent them. But we shouldn’t criticize compensation plans that clearly seek to avoid penalizing employees from going into government simply to score political points.
We need more, not fewer, talented people, from a wide range of industries, who want to work in Washington. It is hard enough finding people in the private sector willing to go through the gauntlet that public service so frequently entails.
Let’s not make it harder.
By ANDREW ROSS SORKIN
The boards of Wall Street’s biggest banks recently received a letter posing a provocative question.
Why, the letter asked, do banks routinely pay out special compensation packages to executives who leave to take government jobs when those packages were intended to retain them?
“Unless the position of these companies is that this is just a backdoor way to pay off a newly minted government official to act in Wall Street’s private interests rather than the public interest, it is very difficult to see how these policies promote long-term shareholder value,” the letter declared.
The letter, sent by Heather Slavkin Corzo, director of the A.F.L.-C.I.O.’s office of investment, has created a stir within the halls of banks and parts of corporate America. Ms. Slavkin Corzo appears to be preparing to go to war with the banks over the pay policy, already submitting proxy proposals to have shareholders vote against it at the annual meetings of Citigroup and Morgan Stanley, for starters.
But perhaps the A.F.L.-C.I.O., the nation’s main union federation, has it backward. Shouldn’t we be trying to encourage more public service? And shouldn’t other industries adopt similar pay practices to allow our most talented people from the broadest array of backgrounds to participate in government?
At issue is a long-running debate about the Wall Street practice of accelerating the vesting of restricted shares and deferred compensation to executives who leave for a role in government. Usually, executives who leave for another job elsewhere, or decide to retire early, forfeit such payments, which act as an incentive to stay and a penalty for departing.
But that isn’t the case for Wall Street executives who join the public sector or, in some cases, take jobs in education or the nonprofit world.
The issue — which some commentators have tagged as part of the revolving door problem between regulators and the industries they cover — moved into the headlines recently when Antonio Weiss, a Lazard banker who has been nominated for under secretary of the Treasury for domestic finance, disclosed that his firm would pay him about $20 million in stock and deferred compensation if he were to win confirmation. Mr. Weiss would not be entitled to that money if he were to leave the firm for a rival bank.
“It feels icky,” Ms. Slavkin Corzo told me about the compensation policy. “We are looking at this from a shareholder perspective,” she added, allowing that she’s “open to the other side. We are asking questions. They are fair.”
However, when I asked her if she could imagine an explanation that didn’t involve the equivalent of bribery, as she previously suggested, she seemed less open to other possibilities. “I’m highly skeptical that there is an alternative explanation that passes the smell test.”
While this topic may make for juicy headlines about the “revolving door,” the A.F.L.-C.I.O. and others seem to be deliberately overlooking important issues, and the entire debate appears to be based more on a populist shakedown than on good public policy.
Let’s start with a basic question: Do we, as a country, want our most highly qualified employees from the private sector to pursue public service?
The answer, I would imagine, should be yes.
Wouldn’t it be nice if all private sector businesses offered their employees the opportunity to pursue public service work — or work at a nonprofit or educational institution — without giving up income or other benefits that they may have earned? Of course it would be.
Well, that’s what the compensation policies of many of the firms in question do. Frankly, it should be encouraged more broadly.
Now, is it good for shareholders?
That’s debatable. Clearly, there are real costs. An employee who leaves generates a replacement cost. And the company is giving up compensation that it could otherwise keep.
But there are benefits as well, which may be a bit harder to quantify in hard numbers. Most of the companies I spoke to about the compensation policy said its purpose was simple: It helps to attract concerned people who may want the option to pursue public service work someday. While most executives will most likely never leave for the government, it helps instill a certain kind of ethos and culture to the firms.
For years, for example, Goldman Sachs has managed to recruit some of the brightest liberal arts majors from top universities, in part by being able to point not just to the work at the firm but to the former executives who worked in senior government posts later.
That’s not to say that altruism is ruling corporate or even employment decisions or that a revolving door problem doesn’t exist. It does.
There is real concern about so-called regulatory capture, with Goldman and Citigroup alumni long cited as prime examples. A certain groupthink has emerged from a steady stream of Wall Street alumni going to Washington. (Representatives for Goldman, Citigroup and Morgan Stanley declined to comment.)
Of course there will inevitably be some conflicts. We should certainly enforce rules that seek to prevent them. But we shouldn’t criticize compensation plans that clearly seek to avoid penalizing employees from going into government simply to score political points.
We need more, not fewer, talented people, from a wide range of industries, who want to work in Washington. It is hard enough finding people in the private sector willing to go through the gauntlet that public service so frequently entails.
Let’s not make it harder.
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