After a report concerning questionable executive compensation payouts an investigation on behalf of current long term investors in Wells Fargo & Company (NYSE:WFC) over potential breaches of fiduciary duty related to the historical and potential compensation that was awarded certain senior officers and executives of Wells Fargo & Company was announced.
Kenneth R. Feinberg, the Obama administrations special master for executive compensation, reviewed over the past five months compensations paid to the 25 highest earners of 419 banks between October 2008, when the first US Troubled Asset Relief Program funds were dispensed, and February 2009, when the stimulus bill took effect. Kenneth Feinberg said he immediately excluded most of the 419 companies from his examination because they said they didn't pay any executives more than $500,000, but he wound up citing 17 banks for making troublesome payments. 11 of the 17 banks making troublesome payments have already repaid the government for money they borrowed under TARP.
Mr. Feinberg determined that banks paid out $1.6 billion in unwarranted bonuses, retention awards, stock grants and 'golden parachute' retirement packages to their top earners at the height of the financial crisis.
Wells Fargo & Company, the diversified financial services company located in San Francisco, California, is among the 17 companies. Another of the other 16 companies was Citigroup, which was reportedly identified for having the most egregious compensation packages, according to government officials with knowledge of Mr. Feinbergs report. Citigroup reportedly handed out several hundred million dollars in pay in 2008 as it neared collapse. Nearly two-thirds of the payouts amount to Andrew J. Hall, owner of a nearly 1000 year old German Medieval Castle, who reportedly received a payout of more than $100 million in connection with spin-off of Citigroups Phibro energy trading unit for $370 million to Occidental Petroleum in 2009.
In most cases the banks told Feinberg that they were obligated by employment contracts to pay the bonuses and other compensation, but Kenneth R. Feinberg said to reporters that those 17 companies exercised 'poor judgment' for making the $1.6 billion in 'ill-advised payments' to their top paid employees shortly after accepting TARP funds from the federal government. 'They shouldn't have made these payments,'' Feinberg told reporters. 'They were ill-advised. They were troublesome.'
According to the investigation by a law firm the investigation on behalf of current long term investors in Wells Fargo & Company (NYSE:WFC) stock focuses, among other things, on possible shareholder claims that certain of Wells Fargos senior officers were unjustly enriched through their receipt of unwarranted, excessive or unearned compensation in past years. Certain senior officers and executives at Wells Fargo & Company were awarded salaries, bonuses, stock options and other forms of long-term, incentive or retirement compensation that were, so the investigation, excessive or unwarranted based on Wells Fargos performance.
In 2007 John Stumpf, president and chief executive officer of Wells Fargo & Co. earned a salary of $749,615 plus a $4.2 million bonus and $11.6 million in stock awards. In 2009, Stumpf's total compensation was $18.7million. Wells Fargo received TARP Funding of $25 billion.
The investigation by the law firm focuses on claims that the prior compensation awarded at Wells Fargo & Company (Public, NYSE:WFC) is now clearly improper based upon its current operating condition.
Wells Fargo & Company reported in 2007 Total Revenue of $8.057billion, which fell to $2.655billion in 2008. Wells Fargo & Company shares (WFC) traded in 2007 at $37.47 per share, and increased during 2008 to almost $40 per share before the announcement of the 2008 Revenue. In 2009 WFC shares fell to $8.61 per share, but regained value and traded recently at $27.42 per share. Wells Fargo was already involved in several other lawsuits. On January 29, 2009, for instance, a lawsuit was filed in the United States District Court for the Southern District of New York, by investors in certain Mortgage Pass-Through Certificates.
Finally and most importantly the investigation focuses also on possible claims that would allow Wells Fargo & Company (NYSE:WFC) stockholders to influence or control future compensation decisions at Wells Fargo & Company.
Within the industry huge amounts have been allocated for payout and bonus. Goldman Sachs is reportedly paying out an average of $544,000 per worker, though many could earn several times that amount, JP Morgan Chase on average pays about $400,000, and Morgan Stanley pays about $262,000. Morgan Stanley reportedly put aside $8.3 billion for pay and benefits during the first half of 2010, 44% more than during the same period last year. Goldman Sachs put aside $3.8 billion for pay and benefits in the second quarter equivalent to 43% of total quarterly revenue in addition to $5.5 billion in the first three months.