What Wells Fargo’s $40.6 Billion in Stock Buybacks Could Have Meant for Its Employees and Customers
November 7, 2018
By Lenore Palladino
The 2016 corruption scandal at Wells Fargo, in which executives pressured employees to meet “wildly unrealistic sales targets,” created a work environment described as “relentless pressure.” Once revealed, the massive fraud committed against millions of consumers led to congressional hearings, substantial fines by state and federal regulators, and a series of announced changes by Wells in which they committed to “building a better bank.”
You might think that this renewed commitment by Wells Fargo would start with targeted attention to its workforce. Instead, Wells Fargo has announced that it is laying off workers, while lining the pockets of share traders.
Wells Fargo has authorized $40.6 billion in stock buybacks since Trump’s tax bill was passed, with two new authorizations of 350 million shares in January and October 2018. What about actual spending? In the first nine months of the year, Wells spent $8.2 billion on repurchasing their own stock (in the first quarter of 2018, they spent $3 billion; in the second quarter they spent $2 billion; in the third quarter, Wells spent $3.2 billion on actual share repurchases). These are all funds that could have been invested in the workforce, rather than enriching top executives and shareholders who know when to sell.
Stock buybacks, also known as open-market share repurchases, occur when companies purchase back their own stock from shareholders on the open market. When a share of stock is bought back, the company reabsorbs that portion of its ownership that was previously distributed among other investors. This reduces the number of outstanding shares in the market, resulting in an increase in the price per share. The purpose of stock buybacks is to reward shareholders—which often include executives themselves—by raising the price of shares.
Wells Fargo plans to continue this practice. At an investor presentation in 2017, Wells Fargo CEO Tim Sloan made clear his expectations that the company’s buybacks program would continue in the coming years: “Is it our goal to increase return to our shareholders and do we have an excess amount of capital? The answer to both is, yes,” Sloan said. “So our expectation should be that we will continue to increase our dividend and our share buybacks next year and the year after that and the year after that.”
It is notable that Wells Fargo’s CEO describes the company as having an “excess of capital,” despite the fact that it is laying off workers, outsourcing jobs, and continuing to pay its employees nearly poverty-level wages. A fair wage for front-line bank workers is a critical part of the improved working conditions required to create an accountable financial institution that Wells Fargo has committed to being. Fair pay for workers helps companies attract and retain a qualified, committed workforce. It also provides economic security and autonomy, preventing workers from living paycheck to paycheck and being forced into a dependent work relationship that keeps them from speaking out when executives, like those at Wells Fargo, push them to commit fraud.
Wells Fargo can certainly afford the level of commitment that their motto, building a better bank, requires. Using data from the S&P Global Compustat database and Wells Fargo’s quarterly filings with the Securities and Exchange Commission (SEC), we calculated that if Wells Fargo divided the $40.6 billion that it has authorized the company to spend on stock buybacks between its 262,700 employees, each employee could have received an astounding $154,000.
If we instead look at actual spending so far on stock buybacks, the $8.2 billion would have yielded $31,214 per employee. Similarly, in 2014, 2015, and 2016, employees could have received over $30,000 more per year, as spending on buybacks ranged between $8 billion and $9 billion. That means that a single Wells Fargo employee could have taken home an additional $120,000 over the last four years if actual spending on buybacks had been simply redirected away from shareholders and towards employee pay.
Even worse, since the Trump tax bill, Wells Fargo has announced that the company will eliminate as many as 26,500 positions over a three-year period (through layoffs and attrition). If the company chose to save just one-tenth of the $40.6 billion it has authorized for spending on stock buybacks, all 26,500 of those jobs could have been saved, assuming each employee takes home $100,000 annually.
Wells Fargo chose to enrich its shareholders at the expense of its workers, and, ultimately, the security of its customers. To build better banks, a better financial sector, and a better economy, we need better rules that encourage productive—not extractive—corporate behavior and foster the shared prosperity U.S. companies can clearly afford to provide.