Golden parachutes for government service?

We’re deep into proxy season, with the deadline for companies that are on a calendar year only 13 days away (9 if you only count business days). And we’ve noticed an interesting shareholder proposal this year that’s on the ballot at four different financial services powerhouses: Citigroup, Goldman Sachs, JP Morgan Chase and Morgan Stanley.

The proposal by the AFL-CIO Reserve Fund uses a phrase we haven’t seen before in SEC filings: government service golden parachutes, which the union describes as rewards for employees who leave their jobs to become government employees. Here’s a key phrase from the proposal filed in the Goldman Sachs proxy that was filed a week ago:

While government service is commendable, we question the practice of our Company providing accelerated vesting of equity-based awards to executives who voluntarily resign to enter government service….We oppose compensation plans that provide windfalls to executives that are unrelated to their performance. For these reasons, we question how our Company benefits from providing Government Service Golden Parachutes. Surely our Company does not expect to receive favorable treatment from its former executives.”

Goldman Sachs, in particular, is well known for its executives who leave to enter government service. The list is so long — from former treasury secretary Hank Paulson to former New Jersey Senator Jon Corzine to a variety of other government officials at different levels — that someone has compiled a pretty comprehensive run-down on Wikipedia.

Last year, Massachusetts Senator Elizabeth Warren specifically targeted Citigroup for similar practices, questioning in this article for Politico, why there seemed to be a revolving door between the banking giant and the Obama administration. Wikipedia entries for both JP Morgan Chase and Morgan Stanley also note the various former employees who have gone on to government service.

To be clear, the union isn’t asking for the practice to end: it’s just asking for the companies to issue a report on the practice, which the union says “provide needed transparency for investors about their use.”

All four of the banks encourage shareholders to reject the proposal, and according to this article from the New Republic in February, three of the four banks (all but J.P Morgan Chase) sought to exclude the proposal from their proxies.

In its response, Goldman Sachs says that “We do not agree with the premise of the proposal, which seems to penalize senior employees for choosing to accept government positions in service of their country.” In its response, Morgan Stanley says that it has “a strong culture of public service and is committed to providing skills and resources to create a lasting civic impact. Our employees may be uniquely positioned to contribute meaningfully through governmental service. The Governmental Service Termination clause avoids penalizing those highly qualified employees, at any level in the Company, who desire to leave the private sector to pursue governmental service.” Citigroup says that depending on the meaning of senior executive, such a report could cover as many as 7,500 of its employees who are eligible for deferred equity awards. JP Morgan says that “we recognize that it is also good for our shareholders and our Firm to have the best and brightest talent from the private sector pursue public service, not because they will give preferential treatment to JPMorgan Chase but because of the contributions they can make towards a well functioning government, which is good for all, including JPMorgan Chase and our shareholders.”

We’d be very surprised — not quite eat your hat surprised, but still — if these proposals passed at the four companies. Citigroup, whose annual meeting is set for April 28, will be the first test. Meetings for the three other banks will be held in mid-May.