CtW Investment Group calls on Wells Fargo to claw back pay, add new directors

CtW Investment Group on Friday called for Wells Fargo & Co. to claw back part of the incentive pay to Carrie Tolstedt, senior executive vice president of community banking, and add two new directors specializing in human resources practices, all actions to promote reform following recent settlements totaling $190 million over allegations of retail banking sales practices abuses.

In a letter to Stephen W. Sanger, lead director of Wells Fargo’s board, Dieter Waizenegger, CtW executive director, wrote, “If the board fails to act quickly to contain the damage from the false accounts scandal, including adopting the steps outlined here to address the long-term consequences of its human capital management practices, we will be unable to support the re-election of directors at next year’s annual meeting.”

The CtW recommendations include calling for the board to use its clawback policy to recover part of the compensation to Ms. Tolstedt, who recently retired with $125 million in severance and equity, Mr. Waizenegger wrote.

Over the 2011 to 2015 period, incentive payments to Ms. Tolstedt totaled more than $6.8 million in cash and $28.3 million in equity grants, the letter said. “According to Wells Fargo’s clawback policy, both of these forms of compensation are subject to clawback at the discretion of the board’s human resources committee in the event that ‘a senior executive has engaged in misconduct, including in a supervisory capacity, that results in significant financial or reputational harm to the company,’” Mr. Waizenegger wrote. “We believe that the recent settlement with regulators clearly qualifies as ‘reputational harm’ to the company, and we think the board erred in allowing Ms. Tolstedt to retire in July without requiring her to surrender some portion of these payments.”

On adding board members, Mr. Waizenegger wrote, “The board should, in dialogue with institutional shareholders, expeditiously identify at least two such director candidates who can join the board promptly and stand for election at next year’s annual meeting.”

“While Wells Fargo has many former and current corporate executives on its board, none of these individuals is identified as having any particular experience or expertise in overseeing human capital management specifically, let alone guiding an organization through a period of difficulty that requires restructuring its recruitment, retention, evaluation and motivation practices for the entire workforce,” Mr. Waizenegger wrote.

In September, Wells Fargo agreed to pay separate settlements to the U.S. Consumer Financial Protection Bureau of $100 million, the city attorney of Los Angeles of $50 million and Office of the Comptroller of the Currency of $35 million over the allegations, according to news releases from each of the government units.

In addition, the settlements called for Wells Fargo to pay $5 million in customer remediation, according to a company news release.

Ancel Martinez, Wells Fargo spokesman, declined to comment on the letter but said the board will address the clawback issue regarding Ms. Tolstedt. No timeframe for a decision has been set, Mr. Martinez added.

CtWIG works with union-sponsored pension funds, whose assets total $250 billion, to promote long-term shareholder value through shareholder activism.