I was wondering how long it would take for banking executives to start going after banks over the terms agreed to in relationship to severance packages, and we may be at the beginning of a number of arbitrations and lawsuits in connection to that issue, as Citigroup (NYSE:C) has been brought to arbitration by Kevin Kessinger for freezing his severance package when he left the company.
Kessinger, who is now the chief investment officer Toronto-Dominion Bank, had his severance package frozen last year when he left Citigroup based on nothing else than it may have put media focus and pressure because of the deal.
The problem is of course they had a legal duty to continue on with their payouts, and that’s what this legal case will be all about. Personally I don’t see how Citigroup can win this, as what can they argue, that they got a bailout from the government and so it released them from legal agreements with their executives? That won’t stand up; at least it shouldn’t stand up legally.
Of course the problem is they don’t look good in the eyes of executives who will think twice before working for Citigroup if they’re going to treat them this way in times of pressure.
How Kessinger is doing it, who headed up the technology and operations at Citigroup, is using arbitration, which is a mechanism which can be used in place of costly and public lawsuits which usually don’t do much to help either side.
It’s somewhat surprising to see that Citigroup hasn’t resumed paying the severance package after the six-month period since they froze it. This is the basis of the arbitration Kessinger is bringing and hopes to resolve.
This isn’t a win/win situation for Citigroup for the reason mentioned above concerning how they treat their executives, so even forcing the arbitration may have been too much, and it could cost them in the short and long term concerning who will want to work for them if they can’t be trusted to pay what they promised.
It doesn’t matter that the timing of it all made them seem to be irresponsible. If they promised and guaranteed it, they should have been faithful and have the integrity to follow through on the pay.
I don’t think there would have been a significant backlash for Citigroup with already-existing contracts they had in place before the economic crisis.
Assuming Kessinger wins the arbitration, which he almost assuredly will, this could bring out other executives at the company who also have reportedly been stiffed by Citigroup to the tune of tens of millions of severance payout packages given them by the bank.
They should have just quietly paid what they promised and let the temporary focus on them happen. Their people would have rallied behind them and potential employees would have liked what they did. Now they are compromising themselves even more by forcing their workers to get the money they were promised by the company. That doesn’t generate a lot of good will for potential hires.
