In February of this year, news broke that Treasury Secretary Jack Lew received an exit package worth over $1 million from Citigroup shortly before joining the Obama administration in 2009. In fact Lew’s contract with Citigroup made explicitly clear that the banker’s eligibility for a special bonus was contingent on his securing a “full time high level position with the U.S. government or regulatory body.”
Critics like Bloomberg News columnist Jonathan Weil were astounded by what appeared to be “some sort of a bounty” paid by Citigroup to burrow their executives deep within government. But far from an aberration, such bonuses appear to be fairly common on Capitol Hill.
Recent disclosures and employment agreements reviewed by The Nation show that current leadership staff to both Democratic and Republican lawmakers have received six-figure bonuses and other incentive pay from corporate firms shortly before taking jobs in Congress. In many cases, these staffers are well positioned to influence multibillion-dollar legislation on issues ranging from tax policy to defense, and which impact their previous employers. If government officials turned lobbyists reflect a well-known “revolving door,” paying corporate employees big bucks to leave lucrative posts to take jobs in government reflect a “reverse revolving door.”
Robert Walker, an attorney and former chief counsel to both the House and Senate ethics committees, told The Nation that ethics rules authorize congressional staffers to receive bonuses from prior employers as long as the money is being paid for work previously performed. Such bonuses and other financial awards are ostensibly allowed so long as they have “not been enhanced because of the individual’s congressional employment.”
But it is almost impossible to discern the circumstances under which a lobbying firm or corporation gives bonuses to departing employees who take powerful political positions. Such information is closely guarded, and none of the employers The Nation spoke to were willing to share this type of information.
Congressional staffers can earn as much as $170,000 as a federal employee, but such pay pales in comparison to what many have come to expect on K Street, where top lobbyists earn several million a year. The bonuses, which cut across industries, from defense contracting to broadcasting, and which can amount to several hundred thousand, help staffers to maintain the fixed costs associated with a lobbyist lifestyle.
This is emblematic of the cash culture of K Street, where salaries continue to climb as special interests seek power in Washington, says Jeff Connaughton, a former lobbyist and senior congressional staffer. To Connaughton, who chronicles the influence of big money in Congress in his 2012 book, The Payoff: Why Wall Street Always Wins, bonuses paid to reverse revolving-door lobbyists must be judged on a case-by-case basis. Some, he said, are simply a share of profits earned during the previous year. But in some cases, bonuses are part of an effort by special interests to maintain influence on Capitol Hill.
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The “Friends of the IDF” Gala Was Like a Rich Kid’s Bar Mitzvah—Until the Protest Started
The “Friends of the IDF” Gala Was Like a Rich Kid’s Bar Mitzvah—Until the Protest Started
“It strains common sense that when employers are giving employees who are about to enter government work these huge bonuses, that there isn’t a hope that there will be influence and access,” say Jessica Levinson, a professor at Loyola Law School in Los Angeles, who compared the bonuses to how special interests seek access to politicians using campaign donations. “I think the main gist of the payment is the same,” notes Levinson. “It’s: ‘I hope when I’m pushing a piece of legislation, you’ll remember me with fondness.’”
Peddling Defense, Tax Policy
In early April, President Obama released his budget proposal, which reflected calls by military leaders asking for contracts with defense behemoth Northrop Grumman to be cut or cut back. Among them was the Global Hawk—an unmanned aerial vehicle used to gather intelligence—which the Air Force has complained is not only too expensive, but unnecessary, since traditional manned U-2 flights adequately serve its surveillance needs.
But lawmakers on both House and Senate Armed Services committees have pushed back, demanding funding for the Global Hawk. The demand to restore funding to the Northrop Grumman drone comes at a time when the company has employed at least twenty former congressional staffers as lobbyists. In addition, Northrop Grumman has former lobbyists running the two major committees.
In January, Ambrose “Bruce” Hock, was hired by Senator Jim Inhofe (R-OK) as a staff member of the Senate Armed Services Committee, where Inhofe recently became ranking member. Hock, a former Northrop Grumman executive and lobbyist, received up to $450,000 in bonus and incentive pay from Northrop Grumman in March, according to disclosures filed with the Ethics Committee.
Hock isn’t alone. On the other side of Capitol Hill, a senior staffer for the House Armed Services Committee who worked for Northrop Grumman as a lobbyist, Thomas Mackenzie, received a similar bonus and severance pay worth $498,334 before assuming his position in 2011.
In remarks on the Senate floor, Inhofe has cited the Global Hawk as an example of how “President Obama wants to gut our military.”
Northrop Grumman’s employment policy, as stated in one February 8-K filing, encourages employees to take positions in government by providing special financial incentives to those who leave to become public servants. It stipulates that when employees retire due to “government service,” they have the privilege to vest stock options that would ordinarily be paid out over time. Reached for comment, Randy Belote, the Northrop Grumman vice president for strategic communications, said its former employee working at the House Armed Services Committee, Tom MacKenzie, left when his position was eliminated and received “customary severance compensation.” The company, however, would not comment on MacKenzie’s bonus (which, according to disclosures, came in addition to severance pay), or the bonus awarded to Bruce Hock.
Asked if Northrop Grumman has met with its former staffers now leading the House and Senate Armed Services committees to discuss defense policy or certain weapons programs, The Nation was told, “Northrop Grumman has a standing policy that we do not comment on meetings or conversations held with government representatives.”
What about the employment contract? Were the bonuses related to the decision by the two former Northrop Grumman executives to enter government work? “We don’t have any further comment. Thanks,” e-mailed the company’s spokesman.
The medical device tax is another case in point.
When President Obama signed the Affordable Care Act into law in 2010, one of the financing mechanisms to expand coverage was an excise tax of 2.3 percent on all non-retail medical device sales, including cardiac defibrillators, stents and ultrasound equipment. The tax, estimated to bring in $29 billion over the next nine years, is facing a high-powered repeal effort by the medical device industry, which is not only spending on grassroots consultants, lobbyists, campaign contributions and advertising. It also has former employees in the halls of Congress.
Brett Loper, before he became one of Speaker John Boehner’s closest aides, led efforts to block the medical device tax as an executive vice president and senior director of government affairs for the Advanced Medical Technology Association (AdvaMed), a trade association for medical device companies, including Baxter Healthcare and Medtronic. As Loper took his congressional job at the end of 2010, AdvaMed paid him a $100,147 bonus. Forms filed with the IRS show that AdvaMed had already paid Loper a $72,500 bonus in addition to the $466,366 in compensation he earned for the year ending December 31, 2010. However, the ethics form filed by Loper states he earned only $449,661 from his AdvaMed position the year he began work in Congress. Neither Loper or AdvaMed responded to requests for comment about this apparent discrepancy.
Similar ties exist in the Senate. In February, the Senate Finance Committee, which has jurisdiction over tax policy, hired Jude Lemke, a former executive with CareFusion Corporation, a large medical device company based in San Diego. That month, she exercised $141,248 in company stock options, and will receive over $30,000 in deferred compensation from her previous employer in July.
CareFusion, which has annual revenues of $3.6 billion and manufactures products like ventilators, has pushed hard to repeal the 2.3 percent tax. The company signed onto a letter opposing the tax, organized employees to sign a petition to Congress. CareFusion is also a member of AdvaMed, which has lobbied against the tax.
In March, the ranking member of the Finance Committee, Orrin Hatch of Utah, along with Amy Klobuchar of Minnesota, brought a resolution expressing disapproval of the medical device tax to the floor of the Senate. The measure passed by an overwhelming 79-20 vote. A bipartisan bill to repeal the tax in the House of Representatives, already co-sponsored by 212 lawmakers, will receive a vote later this year. On tax day in April, Boehner singled out the medical device tax as one of the main taxes he would like to cut.
At a time when lawmakers have prioritized deficit reduction, the medical device industry’s success stands out. A repeal of the tax would remove tens of billions in tax revenues over ten years, and such a loss in revenue would not only increase the deficit but would begin to unwind the money set aside for health reform.
Representatives for AdvaMed did not respond to a request for comment. The spokesperson for the Senate Finance Committee said the former CareFirst executive’s retirement pay was part of her “normal compensation package” and that the Affordable Care Act is “not part of her portfolio.”
“No Shame in Washington”
Out of the discloses reviewed by The Nation, several congressional staffers received bonuses after leaving jobs in telecommunications and broadcasting, an industry that faces a many pressing regulatory and policy issues.
Tim Berry, a senior aide to House Majority Whip Kevin McCarthy, a California Republican, received a $205,000 bonus when he left Time Warner in 2011, where he had lobbied on a broad array of intellectual property, trade and tax legislation.
Summer Wilkie, Time Warner’s director of corporate communications, told The Nation that the bonus was awarded only for Berry’s work the year prior to joining McCarthy’s staff. Berry “has colleagues [from Time Warner] and has lunches with them,” says Wilkie, who explained that Time Warner executives still communicate with Berry but that they do not engage in “any official business with him since he’s been working in Congress.”
A Verizon lobbyist hired to Virginia Democratic Senator Tim Kaine’s staff in February received $272,634 as an “incentive award” this year—atop a salary and severance and deferred compensation package worth $515,782 last year. (Disclosures show the staffer's incentive award plan was negotiated in July of 2012, before Kaine was elected to the Senate.) The staffer, however, is the state director and a representative of Kaine’s office e-mailed The Nation to say that he has not communicated with his former employer and his main focus will be on state outreach efforts.
Still, examples abound of other staffers receiving bonuses from the telecom industry that could potentially influence policy. In 2011 Senator Bill Nelson hired a Qwest Communications lobbyist, Dorothy Walsh, who earned a bonus the same year she joined his staff as a senior adviser (her disclosures, however, do not specify how much of her $324,000 salary was a bonus). In 2008, Senate Majority Leader Harry Reid, a Nevada Democrat, hired one of Comcast’s chief lobbyists, David Krone. In 2010, he named him chief of staff. In an arrangement The Wall Street Journal described as “unusual,” Comcast paid Krone over $2.9 million in severance and salary, in addition to $1.2 million for the purchase of his Philadelphia condo, which Comcast later sold at a loss.
Craig Aaron, president and CEO of Free Press, a watchdog organization for the telecom industry, says he’s very familiar with regulators and lawmakers moving to cash out and take jobs in the private sector, so it doesn’t surprise him that “it’s going the other way, too.” “What does surprise me is that there is no shame in Washington anymore and people don’t think this is a conflict,” said Aaron.
As lawmakers discuss updating the Telecommunications Act of 1996, while tackling several other broadband and Internet policy issues, Aaron also noted, “the idea that you’re getting a bonus equal to or several times your salary as a government employee…. I couldn’t see how that wouldn’t impact your judgment.”
“These bonuses create a serious conflict of interest,” says Richard Painter, the chief ethics counsel to President George Bush, and a professor with the University of Minnesota Law School. “In some instances,” says Painter, “it is the bonuses that allow these people to leave the private sector to work for Congress because the bonuses are needed to supplement the lower federal salary.”
“This is a great strategy for ‘planting' one’s own alumni in key government jobs,” notes Painter, because these staffers “are likely to have influence over matters that affect their previous employers.”
In mid-April, Congress quietly moved a bipartisan bill gutting certain provisions of the recently enacted STOCK Act, the only ethics overhaul passed in recent years. President Obama signed the measure, which rolls back the online database of searchable disclosure forms for congressional and federal staff. There White House posted the announcement with no explanation for the reversal.
“Unfortunately, there hasn’t been as much attention on the reverse revolving door as the revolving door, but it’s the other half of the spin,” says Lisa Gilbert, the director of Public Citizen’s Congress Watch. “People often talk about it as regulatory capture, and I think that’s very accurate.”
In some cases, the bonuses grease the revolving door as it swings a full 360 degrees.
Last June, JPMorgan Chase chief Jamie Dimon was summoned to testify before a Senate panel after news broke that his bank had hidden information from regulators and had lost up to $6.2 billion in investor money from a single trading scheme. Much to the chagrin of reform advocates, he faced little scrutiny from lawmakers. Rather than grilling him on his bank’s compliance with existing rules, several senators asked Dimon if his firm suffered from too much regulation.
For Dimon, he had not only a small army of lobbyists to prepare him for the event; he also had a former consultant on the inside. The staff director for the Senate Banking Committee that summer was Dwight Fettig, who had worked as a lobbyist for firms like JPMorgan and Prudential Financial only two years prior to the hearing. And the same year he passed through the reverse revolving door to take his committee job, Fettig’s lobbyist employer awarded him a salary and bonus of $448,225.
Recent disclosures show that Fettig, who returned to the private sector as a bank industry lobbyist in December, receives a base salary of $350,000–$400,000 with the potential for a bonus this year. Fettig did not return a request for comment.
At least eight financial firms, including Goldman Sachs and Morgan Stanley, have had employment policies that provide executives with financial incentives to join the government. The bonuses on Capitol Hill appear so routine, law professor Jessica Levinson noted, “This is becoming the way we do business.”
See the reverse revolving door in action in “How Did These Five Lobbyists Become Congressional Staffers?”