Should Big Banks provide their executives with golden parachutes to enter government service? That’s the question I asked Wall Street’s largest financial institutions several months ago—a question they haven’t shown much interest in answering.

It is also the topic of an AFL-CIO shareholder proposal that would urge companies to report which senior executives are eligible for a golden parachute and how much they would receive if they entered government service. In response, Citigroup, Goldman Sachs and Morgan Stanley are asking the Securities and Exchange Commission to use its authority to stop shareholders from voting on the proposal at their annual meetings.

Companies traditionally promise senior executives generous severance packages if he or she is terminated after a merger or takeover. These golden parachutes generally consist of equity-based awards whose vesting is accelerated. Normally, stock awards only vest over a period of years, to retain talented employees. Quit and you lose your unvested equity.

Golden parachutes are controversial, but companies defend them as a way to retain executives who otherwise might resign during a change in control. However, a new and outrageous wrinkle has gained increasing prominence on Wall Street: the acceleration of equity awards for executives who voluntarily resign to enter government service.

Past recipients of government golden parachutes from large financial institutions include Treasury Secretary Jack Lew (Citigroup), U.S. Trade Representative Michael Froman (Citigroup) and Undersecretary for International Trade at the Department of Commerce Stefan Selig (Bank of America).

Government-service golden parachutes raise troubling questions. How do Wall Street banks benefit from giving their executives a financial incentive to enter government service? Do they expect to receive favorable government treatment from their former executives? And if not, why should bank shareholders be asked to bear the cost of such golden parachutes?

These questions illustrate why it’s important that the SEC doesn’t allow banks to deprive shareholders of the chance to urge Wall Street to be more transparent and disclose their use of golden parachutes for executives.

Wall Street bank representatives offer various explanations for government-service golden parachutes. Some claim that paying executives to leave for government service helps them retain the executives as employees. Others argue that these provisions are good for the public interest because they facilitate government recruitment of top financial talent. I am not an investment banker, but I don’t see how these rationales benefit the banks’ shareholders.

Sheila Bair, a Republican and former chairwoman of the Federal Deposit Insurance Corp., hit the nail on the head when she wrote in Fortune in December about the practice of companies paying millions to executives who take government jobs: “Only in the Wonderland of Wall Street logic could one argue that this looks like anything other than a bribe. Once upon a time, part of the nobility of joining public service was the willingness to make the financial sacrifice. We want people entering public service because they want to serve the public. Frankly, if they need a [golden parachute], I’d rather they stay away.”

Independence and impartiality in government service matters—especially when it comes to bank regulation after the recent Wall Street financial crisis. In fact, that’s why laws exist to prevent bribery of government officials. For example, under 18 U.S.C. 209, a federal government employee may not receive a salary supplement from any private actor for public service. The punishment for the crime? Up to five years in prison.

This federal bribery statute doesn’t apply until the executive is sworn into government office. But Congress ought to take a close look at why these government-service golden parachutes can skirt the spirit of this law, why they are proliferating, and what it means for our democracy. In the shorter term, if financial institutions think this is truly beneficial to shareholders, they should have no problem with more disclosure and transparency.


Mr. Trumka is president of the AFL-CIO.