Dragline: Why you got to go and say fifty eggs for? Why not thirty-five or thirty-nine?

Luke: I thought it was a nice round number.

Let’s face it, at the heart of all the animosity over this year’s presidential election, lies income inequality.  Whether one is a Trump supporter or a Bernie supporter, this is the issue that is turning these fringe politicians into mainstream ones. Immigration, taxes, and trade (healthcare and education too) are all a function of too many people believing (correctly) that they are getting a smaller and smaller piece of the pie.

Nevertheless while politicians and Wall Street seem to shoulder the bulk of the blame for income inequality, I argue that the ship has already sailed on these culprits, and that in 2016 it is the executive compensation at publicly traded corporations in America that is now the overwhelming cause of this problem.

There is probably no better example of how bad this issue has become, than by focusing on Carrie Tolstedt, the recently ‘retired’ Wells Fargo executive in charge of consumer banking, the division where her employees opened more than two million unauthorized accounts.  Three things revealed by this episode stand out in regards to why America’s biggest problem emanates from its publicly traded corporations.

First and foremost, according to Fortune, Tolstedt “is leaving the giant bank with an enormous pay day—$124.6 million.”  That is a massive number, and taking my cue from Cool Hand Luke, I have to ask “Why couldn’t this have been $50 million, or $75 million?” Would those huge numbers not have been enough to motivate Ms. Tolstedt over the years?  What was the board and the CEO thinking in giving such enormous amounts of the shareholders money to this individual? Keep in mind, that Tolstedt was not even the CEO of Wells Fargo, but one of several executives below him, all of whom I imagine were similarly compensated.  I guess it does seem to make paying the CEO an even greater number that much more palatable.

Given this extraordinary level of compensation, in combination with the fact that some of the metrics it was justified – cross-selling and opening accounts, were fictitious, the second thing that stands out is “In the end, did Carrie Tolstedt add any value at all?”  I’m sure the board, it’s compensation consultants, and now its lawyers, have a lot more time and money than I do to come up with a rationale that confirms ‘yes, she was incredible.’  All I’m going to say is that I believe there were many other candidates who could have been equally as successful as Tolstedt was at one-tenth to one-quarter of the price.

Before I get to the last point, I’d like to quickly touch upon the 125 million dollar payday.  I’m not sure exactly what it was composed of, according to Fortune:

“she will be walking away with $124.6 million in stock, options, and restricted Wells Fargo shares. Some of that hasn’t vested yet. But Tolstedt gets to keep all of it because she technically retired.”

My question is, how did she accumulate the huge number of $125 million?  Yeah, I’m sure those consultants and lawyers will point out how “some” of it was deferred compensation, but in addition to the $125 million I am absolutely positive that every single year prior to this she also received a huge chunk of cash.  Plus it is highly likely that in numerous previous years, if not every year, that in addition to the cash payments received directly, she also sold stock and exercised options that she was granted, thus taking in more cash.  Some of that cash she probably spent to live a fairly lavish life – as expected from someone at her level.  Plus she probably put enough of that previous cash away in savings to retire lavishly, and probably enough for her kids and grandkids to do likewise.  Digging through proxies and trying sort it all out is just mind-boggling, so assume the $125 million is just the tip of the iceberg.  Nevertheless, points one and two embody The Skim and Partial Ponzi inasmuch as she received much greater compensation than the demand/supply of labor dictates (the Skim), and that the value added she supposedly provided in order to receive that compensation is questionable (the Partial Ponzi).  Now more than ever – especially if she was a “standard-bearer of our culture” as the CEO stated on her retirement.

Finally, the last thing that stands out from the Wells Fargo saga, is that several rungs below Carrie Tolstedt, there are too many of these really lousy jobs, where employees are effectively squeezed by managers to do dumb things in order to make a decent living.  In 2016 it’s not about ‘jobs’ in America, it’s about good jobs. I don’t have any simple answers as to how to change that, but if one is going to take these lousy jobs, you should at least not get robbed from your savings and 401k in order to pay the very select few at the top of all public corporations excessive and unjustified amounts of compensation.

Boss: Sorry, Luke. I’m just doing my job. You gotta appreciate that.

Luke: Nah – calling it your job don’t make it right, Boss.

Wells Fargo Exec Who Headed Phony Accounts Unit Collected $125 MillionWells Fargo’s CEO John Stumpf said Tolstedt had been one of the bank’s most important leaders and “a standard-bearer of our culture”


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