A couple months ago, I wrote about the furor over the bonuses paid to some AIG employees, which resulted in the House of Representatives passing a bill that would tax the bonuses at 90%. Although that crisis passed, it looks like another financial services company got the hint.
According to several news reports today, Citigroup has told approximately five former executives that they are not going to receive severance payments that Citigroup is contractually obligated to make.
As reported by David Enrich in The Wall Street Journal, Citigroup has cancelled the payments because it doesn’t want to risk a public uproar, and is “wagering that the former executives will conclude that it would be publicly embarrassing for them to file lawsuits against the struggling, taxpayer-backed company seeking the money.”
I’m not sure that Citigroup is going to win that wager. First of all, Citigroup is deciding on its own, without any pressure or demand from the government, not to make the severance payments. Thus, Citigroup is breaching the agreements of its own volition and can’t claim that the government is coercing or requiring it not to make the payments.
Second, the amounts involved are more than enough incentive for the executives to pursue litigation regardless of whether the attendant publicity embarrasses them. The severance payments total approximately $100 million, of which Citigroup has paid more than half. But that leaves a lot of money to fight over. For example, one executive, Michael Klein, was owed $21.3 million in cash on March 31 and another $7.5 million on October 5, although it isn’t clear whether Citigroup made the March payment to Klein. So, Klein is losing at least $7.5 million due to Citigroup’s decision.
I think at least some of the executives will file suit against Citigroup, assuming that Citigroup does not reconsider its decision and pay them their severance payments.