The New York City Pension Funds have reached agreements with Capital One Financial Corp., Citigroup and Wells Fargo & Co. to expand their policies on clawbacks to cover misconduct that causes financial or reputational harm, city Comptroller John Liu announced Thursday.
The agreements, said Liu, parallel a new best practice the three major banks established last year. Liu oversees the pension funds, which are major shareholders in the banks.
They held a combined 20.8 million shares of Capital One, Citigroup and Wells Fargo valued at $867.6 million as of Tuesday, according to Liu's office.
"Executives need to be held financially accountable for misconduct that harms the company, and that includes improper behavior and reckless risk-taking by those they manage," Liu said. "This is a vital step toward reining in out-of-control executive pay based on short-term gains. We commend these banks for strengthening the link between compensation and business integrity, which is central to creating long-term value, and for setting new standards of disclosure."
The New York City Pension Funds consist of the New York City Employees' Retirement System, Teachers' Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund, and the Board of Education Retirement System.
A press officer for Citi declined comment. Messages seeking comment were also left with the other two banks.
All three banks adopted new policies empowering their respective boards of directors to recover, or claw back, incentive pay from executives who are responsible for misconduct that causes serious financial or reputational harm to their company, either through their actions or through a failure to supervise others.
Previously, the boards could generally only claw back pay from executives who committed intentional or gross misconduct, a higher threshold that generally also results in termination, or in the event of a financial restatement.
According to Liu, the strongest commitment came from Capital One. In the event of a clawback, the bank will disclose the total amount clawed back in connection with any event, as long as the underlying event has already been publicly disclosed to investors.
Liu said Wells Fargo and Citigroup have committed to consider disclosure of their clawbacks on a case-by-case basis. Wells Fargo's board "will determine whether and to what extent public disclosure of information regarding such clawback or recoupment, including the amount of compensation and the executive(s) impacted, is appropriate."
Similarly, according to Liu, Citigroup will consider making public disclosures whenever a decision has been made to cancel deferred compensation payable to a senior executive responsible for costly misconduct.
Last year, Liu and the New York City Pension Funds reached agreements with Goldman Sachs, JPMorgan Chase and Morgan Stanley regarding their clawbacks. The banks clarified that their clawback policies cover not just employees who engaged in reckless risk-taking or misconduct but also their supervisors.