As Cabinet nominees head to Capitol Hill next week, they’ll be pledging to senators their willingness to give all their time and effort to the job. But in some cases, they’ll be giving up a whole lot more if they’re confirmed.
Take the case of Rex Tillerson, the CEO of Exxon Mobil, who earned an estimated $24.3 million in 2016, but if confirmed as secretary of state would be entitled to a government salary of $203,700.
Under an agreement with federal ethics regulators announced this week, the nominee for secretary of state will forgo $7 million in compensation, and put 2 million shares of Exxon Mobil stock he would have received during the next 10 years into a trust.
No one is weeping for Tillerson, who will still receive a $180 million retirement package from Exxon Mobil in an arrangement designed to sever all ties with the company before facing confirmation.
But Tillerson’s case is a textbook example of how complex and costly disclosure and conflict-of-interest rules are, and how they exact a substantial financial toll on those fortunate enough to have amassed a fortune.
“It presents ethical issues and it presents real financial challenges to people who have accumulated wealth,” said William Cohen, a former Republican senator, who served as defense secretary in the Clinton administration.
For Cohen, the transition from Congress to Pentagon was relatively painless. His only asset was an apartment with a mortgage, and his only income was his congressional salary.
“In my case, it wasn’t a major problem,” Cohen said, “but you take a guy like Tillerson coming in. There’s a real challenge for him.”
Confirmation also carries tax consequences. Under a law passed in the early 1990s during the administration of President George H.W. Bush, political appointees can defer any capital gains taxes on investments they have to divest. But because of the way Exxon set up its compensation plan, it’s not clear Tillerson would have fully qualified for the divestiture tax break, so it appears the blind trust may get around that problem.
The more complex your situation, the greater your wealth, the more diverse your assets, the more onerous the government requirements become.
And there’s the cost of filling out all the required forms, which carries the risk of making a mistake that could open you up to allegations of wrong-doing.
By the time Donald Rumsfeld became defense secretary for a second time in 2001, he had amassed a considerable fortune in the business world as CEO of several companies including G.D. Searle, General Instrument and Gilead Sciences.
According to his federally mandated disclosure forms Rumsfeld was worth between $200 and $500 million. Just completing all the paperwork cost Rumsfeld between $700,000 and $800,000, vastly eclipsing his salary as defense secretary, which at the time was $184,000.
For others who do not come to public service with vast fortunes, it can also require private sacrifice.
Marine Gen. James Mattis, nominated for defense secretary, retired as a four-star in 2013, and entered private life after a 41-year-year career in the military. That entitles him to an annual pension of roughly $200,000 a year.
“That’s not bad in terms of the average working guy,” Cohen said. “On the other hand, if he’s in the process of making hundreds of thousands of dollars more, somebody else might say, ‘I think I need to take care of my family.’ ”
“A lot of people are in the prime of their careers when they leave. That was the case for me,” said Gordon England, who served as deputy defense secretary and twice as Navy secretary in the administration of President George W. Bush.
England came to the Pentagon after high-paying stints as president of Lockheed Martin and executive vice president of General Dynamics.
He was forced by Defense Department rules, which are more strict than other government agencies, to sell all his individual stocks and pay the capital gains taxes.
And England soon found it was costing him far more than his $135,000 salary as Navy secretary to live in Washington.
“So you know you spend, in my case eight years where you are not really making any money because you are spending more than you make maintaining two residences, travel that sort of thing,” said England, now retired and living in Texas. “So you’re not making an income and you have very restricted investment.”
England said when he was at the Pentagon he tried to hire a lot of experienced executives from industry, only to find many he couldn’t afford, or were unwilling to make the financial sacrifice.
“There are still a lot of people who are excluded from government service because of the onerous financial requirements,” he said.
But even in a cynical town, there are people who are willing to make a private sacrifice for public service.
Former secretary Cohen says, while he hasn’t talked to Mattis, he’s confident the retired four-star never thought twice about whether he could earn more in the private sector.
“I assume that wasn’t even a question for him, that this is something he would do under any circumstances,” Cohen said.
“I think for some it might be putting the garland on top of the head to say ‘I did it.’ But I think for [the] most part it’s a sense of patriotism. If the president calls and asks you to serve, unless there is a compelling reason for you, that of your health or your family, I think most Americans would say ‘yes.’ ”
England also has no regrets about his years of comparatively modest earnings.
“There’s a lot of things money can’t buy,” England said.
“I was comfortable, so making a lot of money was not on my agenda. And frankly I had experiences with the government that Warren Buffett, Bill Gates can’t ever do no matter how much money you have you can’t have the kind of experiences I did as Navy secretary and deputy secretary of defense,” England said.
Cohen agrees, “Even with all you have to go through, I think most would say it’s one of the few times in my life that I can do something beyond myself and contribute to the nation’s well-being.”
