By Tomoeh Murakami Tse
Washington Post Staff Writer
Tuesday, February 10, 2009
As part of his battle against excessive pay packages, President Obama has taken aim at golden parachutes -- those hefty lump sums that top executives cart away when they leave a job. But the practice is so entrenched that many of the president's own top recruits for White House positions are receiving generous severance packages from their previous employers.
While the lump sums pale in comparison to the startling amounts awarded to Wall Street executives in recent years, the payouts highlight the pervasiveness of the practice and further illustrate the growing pay disparity between ordinary citizens and the nation's elite.
Consider the new chairman of the Securities and Exchange Commission. Mary L. Schapiro reported that she is getting a lump-sum payment of $5 million to $25 million from the Financial Industry Regulatory Authority, the brokerage industry's self-regulating body she headed before joining the SEC last month. An SEC spokesman Friday said the package was worth $7.2 million.
The payment comes from FINRA's defined-benefit plans, according to financial disclosure statements, which only lists assets in ranges. Schapiro has worked for FINRA and its predecessor organization, National Association of Securities Dealers, since 1996.
She also reported a payout of $675,033 in deferred compensation from Kraft Foods, where she served on the board of directors. She was also paid deferred compensation from Duke Energy, in cash and stock, valued at $750,000 to $1.5 million.
President Obama's pick for Treasury secretary, Timothy F. Geithner, has disclosed a $434,668 severance from the Federal Reserve Bank of New York. Geithner, who worked overtime last year negotiating lifelines for storied Wall Street firms as the credit crisis deepened, will also get $50,000 to $100,000 in unused vacation time and comp days.
According to an official at the New York Fed, Geithner's severance is from a supplementary retirement plan that would have begun paying out when Geithner turned 55. Geithner is 47, and the board decided to give him the cash equivalent, the official said.
Executive compensation, including severance packages, has received greater scrutiny in Congress and on Main Street as the pay gap between average workers and top corporate officers widened in recent years. But now, public outrage with many executives has reached a boiling point as top officials at institutions receiving taxpayer bailout funds have continued to receive large packages despite tumbling shares.
There is a difference, however, between White House employees and corporate titans. Unlike the top executives who take their goodbye packages and immediately sign on to other high-paying corporate posts, the presidential appointees are taking significant pay cuts to join the federal government.
Schapiro, who received $2.8 million in salary and incentive compensation last year from FINRA, will make $162,900 this year as SEC chairman.
Even Geithner, who is going from one government job to another, will take a pay cut. He earned $411,200 as president and chief executive of the New York Fed, and he will take home $196,700 as head of Treasury.
A cadre of lawyers will also see their seven-figure incomes dwindle. But their lump-sum payments should soften the blow.
The new attorney general, Eric H. Holder Jr., who made $3.3 million as partner at the law and lobbying firm Covington & Burling, reported a severance payment of $1 million to $5 million. According to additional documents filed with the Senate Judiciary Committee, Holder's severance was $1.3 million. His take-home pay this year will be $196,700.
Jeh C. Johnson, if confirmed as top lawyer in the Department of Defense, would also get a severance of $1 million to $5 million from Paul, Weiss, Rifkind, Wharton & Garrison. Johnson, whose firm paid him $2.6 million last year, did not respond to a request for specifics about his severance. He would make $153,200 this year if confirmed.
Thomas J. Perrelli is eligible for an estimated "withdrawal payment" of $768,200 from Jenner & Block of Chicago if confirmed as associate attorney general. The firm paid him $1.4 million last year. He would make $162,900.
A number of administration nominees and appointees are set to get lump-sum payments from corporations that are accelerating the vesting of restricted stock. The practice, which is widespread, has long been criticized by corporate governance watchdogs as violating the spirit in which the equity awards were granted.
Restricted stock, meant to retain talent or create performance incentives, is a form of compensation that normally cannot be cashed out until a certain amount of time has passed or financial targets have been reached.
"This is a huge issue," said Patrick McGurn, special counsel for proxy adviser RiskMetrics Group, noting that accelerated restricted stock constituted a bulk of the outsized "pay-for-failure" severance payments that have prompted public outrage. "The basic idea behind any equity award is that it vests over a period of time. Any time you have an acceleration, it basically means you short-stop that passage of time and it can defeat the purpose that you pay the grant in the first place."
Jacob Lew, the new deputy secretary of state for management, is getting $250,001 to $500,000 worth of accelerated restricted Citigroup stock, documents show. He received $1.1 million in salary and discretionary cash compensation last year as managing director of the struggling banking giant, which has taken $45 billion in government bailout money.
Dennis C. Blair, now director of national intelligence, reported that deferred stock units worth $100,001 to $250,000 "will be converted to stock within 30 days of terminating from Tyco."
Leon Panetta, nominated to oversee the Central Intelligence Agency, will get $50,001 to $100,000 in restricted stock from Zenith National Insurance. Zenith paid him $170,000 last year for serving on its board, part of the more than $1 million Panetta has earned since the beginning of 2008 in consulting and speaking fees and from directorships at institutions and companies.
Gary Gensler, Obama's pick to head the Commodity Futures Trading Commission, is to receive $100,001 to $250,000 in restricted stock from Arlington-based Strayer Education, which owns Strayer University. Gensler got nearly $200,000 in board service fees last year from Strayer; WageWorks, a corporate benefits company; and private-equity firm New Mountain Capital.
Eric K. Shinseki, the new secretary of Veterans Affairs, reported that "3,294 shares of Honeywell common stock will be reissued as unrestricted common stock following resignation." Based on Honeywell International's stock price yesterday, those shares would be worth about $111,000.
Shinseki is also getting a lump-sum payment of deferred compensation from insurance giant Guardian Life worth $100,001 to $250,000. He served on the boards of both Honeywell and Guardian Life, as well as several other companies, earning roughly $300,000 combined for such services last year.
And Ron Kirk, Obama's choice for U.S. trade representative, would receive a $150,000 bonus from law firm Vinson & Elkins of Houston, which would also accelerate the vesting of his defined-contribution plan.
Kirk would also get payouts from several companies. Upon his resignation, PetSmart and Brinker International would accelerate the vesting of his restricted stock, each valued at $100,001 to $250,000.
He would forfeit unvested restricted shares from Dean Foods, but reported that he would exercise his stock options and divest of all Dean stock, both of which he valued at $250,001 to $500,000. Last year, Kirk received nearly half a million dollars by serving on the boards of PetSmart, Dean Foods and Brinker, on top of the $556,740 he pulled in as a partner. If confirmed, his new job would pay $196,700.