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Government Service Golden Parachutes

We should feel confident that our government officials are working for us—for the public interest and the common good. But many Wall Street institutions provide incentives to senior executives who leave their companies to take government posts. These government service "golden parachutes" raise troubling public policy questions. How do Wall Street investment banks benefit from giving their executives a financial incentive to enter government service? Do they expect to receive favorable government treatment from their former executives?

At most companies, equity compensation is used as an employee retention and motivation tool. If you don’t satisfy the employment conditions for vesting, you don’t earn your equity awards. However, many public companies offer golden parachute clauses for senior executives should there be a change-in-control and the executive is involuntarily terminated. But why should departing executives receive a windfall payment to enter government service, while remaining employees continue to meet the vesting terms of their equity awards? Equity compensation plans should be designed to retain executive talent, not encourage executives to resign from the company. While entering government service is a laudable career choice, why should shareholders subsidize the second career choices of executives?

Sheila Bair, the former chair of the Federal Deposit Insurance Corp., wrote in Fortune: “Only in the Wonderland of Wall Street logic could one argue that this looks like anything other than a bribe. Once upon a time, part of the nobility of joining public service was the willingness to make the financial sacrifice. We want people entering public service because they want to serve the public. Frankly, if they need a [golden parachute], I’d rather they stay away.”

The public deserves to know whether government service golden parachutes are being offered to senior executives. Sen. Tammy Baldwin (D-Wis.) and Rep. Elijah Cummings (D-Md.) recently introduced a bill, the Financial Services Conflict of Interest Act, that would stop finance executives from receiving bonuses for going to work in government.

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