When President Obama nominated former Office of Management and Budget Director Jack Lew to succeed Tim Geithner as Secretary of Treasury, eyebrows were raised in some quarters when it was reported that Lew was rewarded by his former employer, Citigroup, for making the jump from Wall Street to Pennsylvania Avenue.
Now investigators at the Project on Government Oversight have found that Lew's profiting from following the revolving door from the private to the public sector isn't all that unusual. In fact, according to POGO's Michael Smallberg, it happens often:
"Other major corporations also make it financially advantageous for executives to take government jobs, according to regulatory filings reviewed by POGO. Through their compensation policies, companies may be fueling the revolving door and making it easier for their alumni to gain influence over public policy," Smallberg reports today.
At Morgan Stanley, for example, POGO found that high-ranking executives "have been eligible to receive a bonus--one that they would ordinarily forfeit for leaving the company prematurely--if they go to work for a 'governmental department or agency, self-regulatory agency or other public service employer,'" according to POGO's review of a company pay plan filed last year.
At the Blackstone Group, top suite executives usually are required to forgeit their holdings in unvested partnerships if they leave the firm, but that requirement is waived when the executive goes to fill certain jobs in government, according to Smallberg.
Having a friend in a strategically important position in the federal regulatory apparatus clearly can be useful for a Wall Street titan, but POGO found another factor that encourages such arrangements, reforms of the federal tax code implemented in the wake of the Enron scandal.
"A tax law passed in 2004 banned companies from accelerating payments to employees from their long-term pay plans, with only a few exceptions, such as death or an 'unforeseeable emergency.' There is also a 'government service' exception," Smallberg said.
"A 'payment may be accelerated' to an executive who joins the government if an ethics official finds that 'divestiture of the financial interest or termination of the financial arrangement is reasonably necessary' to comply with federal ethics rules, according to regulations issued by the Internal Revenue Service."
The tax code change in question was a result of public outrage over the excessive gains received by multiple top Enron executives, according to a 2003 investigative report from the Joint Committee on Taxation quoted by Smallberg.
Go here for the full POGO report.