Jack Lew's Deal Explained

| Tue Feb. 26, 2013 10:44 AM EST

Yesterday I asked for an innocent explanation of Jack Lew's deal with Citi, which guaranteed him a bonus if he left the company for a senior position with the federal government. Mark Kleiman, who says Lew is an old friend, suggests that it all has to do with the fact that bonuses are normally deferred (paid at the end of the year or even further out), which puts firms in a quandary if someone like Lew leaves for public service. Do they risk looking miserly by refusing to pay out a bonus that's already been earned, or do they make a decision to pay it, which would look a bit like a bribe?

So if a firm hires someone with a public-service background and ambitions to go back into government, it makes sense to negotiate a severance bonus up front, specifically in case the person leaves to take a senior Federal job. That way the person is protected against a big financial hit if such a job comes through....while the firm avoids the problem of voluntarily either paying or not paying a big bonus to someone who will exercise power over it in the future.

That’s the deal Jack Lew negotiated with CitiGroup, and that Rupert Mudoch’s character assassins at the Wall Street Journal want to make a scandal out of. And yet Kevin Drum wonders what the innocent explanation for such a deal might be.

In fact, what would be hard would be inventing a guilty explanation. If Citi wanted to grease the palm of someone departing throug [sic] the revolving door, there would have been no need to make the deal in advance, or in writing. The only purpose of doing so would have been to avoid what otherwise would have been a confict of interest.

That makes sense. And I'd add something to this: if this is the explanation, then it's obviously standard practice on Wall Street, something that the, ahem, Wall Street Journal would know perfectly well. But that didn't stop them.

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