KENNESAW, Ga. | Sep 16, 2016

Wells Fargo is not likely to take back any of the millions in annual pay and share and cash bonuses paid to Carrie Tolstedt, until recently the executive in charge of its banking unit where thousands of employees allegedly cheated customers over the last five years.

On Thursday, Wells Fargo agreed to pay $185 million to regulators, including $100 million to the Consumer Financial Protection Bureau, to settle claims that it defrauded millions of customers since at least 2011 by opening millions of unauthorized deposit, debit and credit card accounts.

Tolstedt, Wells Fargo’s highest ranking female executive, led the bank’s community banking division from the bank’s merger in 2008 with Wachovia until her retirement in July. Regulators alleged the frauds in the businesses she managed have been going on since at least 2011. Tolstedt earned $9.05 million in annual pay and $7.3 million more in cash and stock bonuses in 2015, according to Wells Fargo’s proxy.

That proxy says Tolstedt deserved her compensation awards of cash, stock and other incentive bonuses because she had achieved a number of strategic objectives, “including record deposit levels reflecting continued growth in primary checking customers, and continued success in increasing online and mobile banking customers.”

Tolstedt retired at age 56 in July, according to a press release. A spokeswoman confirmed that Tolstedt “made the decision to retire at year-end after 27 years with Wells Fargo.”

She was showered with high praise at the time by CEO John Stumpf and takes away $124.6 million in stock, options, and restricted Wells Fargo shares for her contributions. In the press release on July 12 announcing her retirement Stumpf said, “Tolstedt’s team is a leader in building and deepening customer loyalty and team member engagement across the business, which today serves more than 20 million retail checking households and 3 million small business owners, and employs 94,000 team members.”

Clawback by Wells Fargo depends entirely on the company’s willingness to recoup. The compensation clawback provision of the Sarbanes-Oxley Act of 2002 and a proposed clawback rule under Dodd-Frank would not be applicable to the Wells Fargo situation. Both laws require a restatement of the company’s accounts before a compensation clawback can be triggered.

The unearned income recorded on the Wells Fargo financial statements, reportedly $5 million in fees that will be paid back to customers, is not financially material enough to require a restatement.

A Wells Fargo spokeswoman declined comment on whether the bank plans to restate its financials as a result of the errors.

In its 2015 proxy Wells Fargo says it “has strong recoupment and clawback policies in place designed so that incentive compensation awards to our named executives encourage the creation of long-term, sustainable performance, while at the same time discourage our executives from taking imprudent or excessive risks that would adversely impact the company.”

However, Divesh Sharma, an accounting professor at Kennesaw State University’s Coles College of Business whose research focuses on corporate clawback policies, says Wells Fargo’s policy “still leaves a lot of room for significant discretion by the board.”

Wells Fargo’s clawback and recoupment policy is triggered primarily by either misconduct by an executive that leads to a restatement of the company’s financial statements or conduct that leads to material impact on financial information or significant reputational harm to the company.

Wells Fargo’s policy states that an “improper or grossly negligent failure, including in a supervisory capacity, to identify, escalate, monitor or manage, in timely manner and as reasonably expected, risks material to the Company or the executive’s business group” is what’s necessary to hold an executive responsible and clawback pay.

Wells Fargo was asked whether the bank had considered the financial or reputational impact of the allegations to be material to its results and financial reporting. A spokeswoman responded: “We have not disclosed this matter in our public filings. Each quarter, we consider all available relevant and appropriate facts and circumstances in determining whether a litigation matter is material and disclosed in our public filings. Based on that review, we determined that the matter was not material.”

Terms such as “materiality”, “improper”, and “significant”, says Sharma, are quite subjective. In allowing her to retire with honors in July, Wells Fargo’s board would have likely decided before her retirement agreement was signed that she had neither committed any misconduct herself nor failed as a manager, says Sharma.

“The board could decide now that they know more now than they knew when they negotiated Tolstedt's retirement and reconsider recoupment,” says Sharma, “but that would difficult if they had agreed they would not recoup.”

Also missing from Wells Fargo’s policy, says Sharma is a “lookback” clause. The allegations go back to 2011, but the Wells Fargo policy has no clear indication how far they would be willing to go back to recover unearned compensation from any executive.

The compensation clawback provisions of the Sarbanes-Oxley Act of 2002, used sparingly by the Securities and Exchange Commission since enactment, only look back one year. The Dodd-Frank clawback rules, not yet finalized by the SEC, look back three years.

In an interview with the Wall Street Journal on Tuesday, Wells Fargo Chairman and CEO John Stumpf would not comment on who was ultimately responsible for policies and company culture that encouraged employees to open new accounts for millions of customers, sometimes moving customer money to those accounts without their permission and in some cases incurring fees and overdrafts that resulted in damage to customers’ credit histories.

Through a spokeswoman later, Stumpf told the Wall Street Journal that when the bank falls short “I feel accountable and our leadership team feels accountable—and we want all our stakeholders to know that.”

- MarketWatch