Jack Lew is the nominee for Treasury secretary whose own bonus as an investment banker was bailed out by the Treasury Department when it rescued Citigroup in 2008. He owes much to America's taxpayers. He should also be grateful to Citigroup for agreeing to let him rejoin the government without suffering much for it financially.
An intriguing revelation from Lew's recent Senate confirmation hearing was that he stood to be paid handsomely by Citigroup if he left the company for a top U.S. government job, under his 2006 employment agreement with the bank. The wording of the pay provisions made it seem, at least to me, as if Citigroup might have agreed to pay Lew some sort of a bounty to seek out, and be appointed to, such a position.
Lew didn't shed much light on the subject after Sen. Orrin Hatch, R-Utah, asked him about it at the hearing. "I'm not familiar with records that were kept, so I don't have access to things that I don't know about," Lew said. It wasn't clear which records (or even which question) Lew was referring to, and Hatch didn't press the matter.
So I did some digging. I wasn't able to find someone who would show me an entire copy of Lew's employment agreement with Citigroup. But I did get a look at the first three pages of it, as well as a related addendum from January 2008.
Lew was director of the Office of Management and Budget during President Bill Clinton's administration, after which he worked at New York University as an executive and a professor. He joined Citigroup in 2006 as chief operating officer of its global wealth-management division. Lew was recommended by former Treasury Secretary Robert Rubin, who at the time was chairman of Citigroup's executive committee. (There seems to be an unwritten rule that every Treasury secretary must have deep ties to Rubin.) He became chief operating officer of the bank's alternative-investments unit in January 2008.
Lew's employment agreement with Citigroup said his "guaranteed incentive and retention award" wouldn't be paid if he quit his job, with limited exceptions. One was if he left Citigroup "as a result of your acceptance of a full-time high level position with the United States government or regulatory body." This applied if he left "prior to the payment of any incentive and retention award for performance year 2008 or thereafter." Such an award wasn't guaranteed but would be consistent with the company's practice, the document said.
A similar provision concerned his stock-based compensation. If Lew left in 2008 or afterward to accept a high-level U.S. government position, all of his outstanding equity awards, including restricted stock, would vest immediately, the document said. Alternatively, Citigroup had the option of paying Lew the cash equivalent of any shares he forfeited upon leaving. The terms didn't mention other kinds of public-service work, such as a midlevel U.S. government job, a position in municipal or state government, or working at a nonprofit organization such as a university.
Lew stood to receive $250,001 to $500,000 worth of accelerated restricted Citigroup stock when he left the company, according to a disclosure report he filed in January 2009. The same document listed $1.1 million of "salary and discretionary cash comp" from Citigroup. Lew said at his Feb. 13 hearing that his salary for 2008 was $350,000.
Lew was named a deputy secretary of state in 2009, Office of Management and Budget director again in 2010, and then became President Barack Obama's chief of staff in 2012. Now he's up for Treasury secretary, where he would play a critical role in overseeing the U.S.'s financial industry and rescuing it should another crisis ensue. Citigroup couldn't have planned this better if it tried, which raises the natural question: Did it try?
When I asked Citigroup what its rationale was for including the government-service exception, a spokeswoman, Danielle Romero-Apsilos, said: "Citi routinely accommodates individuals who wish to leave the firm to pursue a position in government or nonprofit sector." I pointed out that the contract terms I was asking about didn't mention anything about a nonprofit, but she declined to elaborate on her statement.
Later I asked Romero-Apsilos if Citigroup had a policy of providing financial incentives to senior executives to encourage them to seek high-level federal jobs. She replied: "We have no such incentives, then or now." I'm not sure I agree with her after reading the part about government service in Lew's "incentive and retention award." A Treasury Department spokeswoman, Natalie Earnest, declined to comment.
It makes sense that Lew would have been thinking ahead to his next career move when he joined Citigroup in 2006. It's also understandable that Citigroup sought to discourage Lew from joining a competitor. Why no mention of other kinds of public service, say a city hall job or returning to teaching? Why reward him for landing only a high-level U.S. government post, but not jobs such as those, which also are of high social importance?
We don't know the whole story, except that Lew's agreement clearly attached unique value to the possibility that he might get a top U.S. government position someday. Should that be of concern to the public? It ought to be.
Jonathan Weil is a Bloomberg News columnist.