Former Equifax Chief Executive Richard Smith will walk away from the company with at least $48.9 million in company stock and pension benefits, according to company disclosures.
That has some lawmakers upset, who believe the man who was in charge of the company during one of America’s worst data breaches should give up some compensation through so-called “clawback” provisions.
Some are also expecting Equifax's new top executives and Smith, who stepped down Tuesday, to appear next week at Senate and House hearings where they're likely to be grilled on the data breach.
From mid-May to the end of July, criminals got away with Social Security numbers and other key identifying information on 143 million Americans, according to Equifax. The company disclosed the hacking incident on Sept. 7.
“It’s not real accountability if the CEO resigns without giving back a nickel in pay and without publicly answering questions,” said Sen. Elizabeth Warren, D-Mass., in a statement. “Mr. Smith, along with the new Chairman and the new interim CEO, should all testify before the Senate Banking Committee. The American public deserves answers about what went wrong at Equifax and what the company plans to do going forward.”
But it appears unlikely that Smith will be subject to clawback provisions under federal law. According to the 2010 Dodd-Frank law enacted after the 2008 financial crisis, a company’s top executives don’t risk losing their pay to clawbacks unless the company made a “material” misstatement that requires it to re-state past financial results. Equifax probably won’t have to restate its earnings.
The 2002 Sarbanes-Oxley law, which applies to CEOs and chief financial officers, has similar language, although it also allows clawbacks for “misconduct.”
An Equifax spokesman didn’t say whether the company will seek to recover some of Smith’s past pay.
Smith is giving up some pay. According to Smith's one-page departure agreement included with his announced retirement on Tuesday, Smith forfeited his 2017 bonus. Equifax spokesman Wyatt Jefferies said the bonus could have been comparable to previous years' bonuses of about $3 million.
Jefferies said Smith will not receive a $5.2 severance payment he could have received if the departure was involuntary.
He is, however, eligible for a pension valued at $18.4 million.
“Under the plan, he is entitled to that pension under any circumstance,” said Jefferies.
According to Equifax's most recent proxy filing to the Securities and Exchange Commission, Smith will also receive health benefits valued at $100,600.
But the severance agreement also said “all decisions relating to the characterization of Mr. Smith’s departure and any obligations or benefits owed” under his employment contract were put on hold while Equifax’s board of directors does an “independent review” of the data breach.
It’s unclear if that means Smith’s departure could later be treated as a firing or as a voluntary departure or termination without cause, which could result in changes in Smith’s ultimate exit package.
In any case, Smith will walk away with much more than a pension. He has been CEO at Equifax for a dozen years, receiving millions of dollars in bonuses and stock and option awards.
Over the past three years, his compensation totaled almost $41.8 million, mostly from stock awards and bonuses, including almost $15 million last year.
Over time, those stock awards have vested, or converted to his ownership, allowing him to accumulate a huge Equifax stake that he has been cashing out over time.
Last year alone, Smith’s “realized” pay of $55.4 million from stock and option awards from previous years. The total included $39.5 million from cashing in options for Equifax stock.
At the end of 2016, Smith also had about $40.2 million worth of stock-related awards that hadn’t vested or he otherwise hadn’t earned yet by meeting the company’s performance goals. It’s unclear whether he was able to claim ownership of any of that compensation upon retirement.
Including Equifax stock he acquired in earlier years, Smith’s stake in the company stood at 285,126 shares as of March 1, worth about $38 million. He also sold $9.7 million worth of Equifax stock in February.
But Equifax’s stock price has plunged almost 30 percent since the hacking incident was disclosed earlier this month. As a result, the value of Smith’s stake in the company has dropped by about $7.5 million, to $30.5 million as of Wednesday.
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