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Wall Street Journal, December 3, 2009 article


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Goldman Takes Offensive on Pay

Wall Street firm Goldman Sachs Group Inc.—known for its outsize profits and unapologetically handsome pay packages to go with them—has begun meeting with major investors in an effort to ward off an investor backlash over its record compensation pool.


The private discussions are a first for Goldman, several shareholders said, as the Wall Street firm finds its self on the defensive over its pay, where employees are on track to earn an average of more than $700,000 apiece this year. The meetings are expected to last several more weeks and come as shareholders are filing proposals aimed at restricting pay at Goldman.

Goldman officials described the meetings, which began in October and have been attended in many cases by President and Chief Operating Officer Gary Cohn or Chief Financial Officer David Viniar, as an effort to explain why its pay levels are reasonable given the company's performance and receive feedback from key stakeholders. Some investors have recently said they now expect Goldman to pay out a smaller percentage of its revenue in 2009 than it did in previous years.

Winning shareholder support for its compensation-and-benefit pool is critical for Goldman executives. While the public uproar over pay has hurt the firm's reputation, shareholders are the actual owners of the firm and the only ones with voting power to change the compensation structure. As a result, Goldman executives have been extremely focused on shareholder feedback.

Lots to Say on Pay

Goldman Sachs

See letters and proposals from shareholders.

Benedictine Sisters of Mt. Angel & Nathan Cummings Foundation

Northwest & Ethical Investments LP of Canada

Connecticut Retirement Plans & Trust Funds





Bloomberg News

Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs at a conference in September. Below, a mock wanted posted of Blankfein, during a union rally outside the offices of Goldman's in Washington, D.C., last month.


Bloomberg News


During these meetings, Goldman also has been asking investors how they make voting decisions on shareholder proposals, according to people who heard the conversations. Some investors say the questions suggest Goldman is developing a strategy to navigate any shareholder proposals aimed at reining in pay. Shareholders likely will vote on the proposals this spring.

Five shareholder proposals have been submitted to Goldman, including three related to compensation. The proposal considered likeliest to pass would give shareholders a nonbinding vote on executive pay and would require Goldman to disclose more details about how executives are paid. A similar proposal in 2008 got 46% of the vote.

Goldman spokesman Lucas van Praag said the company is "puzzled" at the suggestion some shareholders want compensation levels reduced because shareholder feedback has been very supportive.

He said Goldman has "an open, ongoing dialogue with our shareholders about any and all matters they think are important. He said while the meetings included a segment on compensation, the firm also discussed third-quarter results and other matters with shareholders. Another senior company executive added the discussions are being held primarily to find out if shareholders want the firm to change its compensation program. The responses have been "almost uniformly no," he said.

Hye-Won Choi, head of corporate governance at TIAA-CREF, which owns about $1 billion of Goldman shares, said the meetings "are a constructive first step, and the next logical action would be for Goldman to proactively consider putting its compensation policies to a vote of shareholders. If Goldman Sachs acts the rest of Wall Street will likely follow." TIAA-CREF has been pushing for better disclosure by all publicly traded companies about how compensation is linked to performance and business strategy.

So far, Goldman has shown no signs of backing down to anger over the firm's pay and benefits, on track to hit a record high of about $717,000 per employee, consultant and temporary worker for 2009, nearly double last year's $364,000.

Goldman has bristled at previous shareholder proposals on pay. Directors opposed the 2008 say-on-pay proposal. "It would create a cloud, a constraint, a limitation on decisions that have been at the heart of what a board has done," Goldman Chairman and Chief Executive Lloyd Blankfein said.

In 2009, Goldman and other financial firms that got U.S. government aid were required to sponsor a vote on executive pay. The proposal passed by a wide margin. Goldman executives elected to take no bonuses for last year.

As part of at least some discussions with shareholders, Goldman has distributed a document titled "Goldman Sachs Compensation Practices," which explains the firm's pay principles and practices in the same dry, measured tone typically used in presentations about Goldman's business operations.

A 14-page version of the document reviewed by The Wall Street Journal notes that Goldman has "substantially outperformed peers from a shareholder value creation perspective."

From 2000 to 2008, for example, the firm "generated the highest average [per-share earnings] growth rate," return on equity and growth in book value per share, "and still been able to pay out more on average per employee" than the average for a group of publicly traded rivals, according to the document. Those companies include Morgan Stanley, J.P. Morgan Chase & Co., Merrill Lynch & Co. and Lehman Brothers Holdings Inc., the latter two of which no longer exist as stand-alone firms.

In its Nov. 30 shareholder proposal, Connecticut Retirement Plans & Trust Funds, which owns about $39 million in Goldman shares, said a say-on-pay requirement "would give shareholders an opportunity to provide direct feedback" on the size of Goldman's bonus pool "and on other executive compensation policies and practices."

The state pension system co-sponsored the unsuccessful say-on-pay measure in 2008. That was the only pay-related proposal in Goldman's proxy statement that year.

Mr. van Praag, the Goldman spokesman, said say-on-pay is "a very important issue which the board will consider carefully and then make its recommendation."

A separate proposal for next spring's shareholder meeting, filed by Northwest & Ethical Investments LP of Canada, would request that the Goldman board set up an independent panel to review the company's long-term compensation and compare it to industry trends.

"Goldman Sachs is getting a lot of heat in the press over compensation, and this may be the year where the stars align for real change," said Robert Walker, vice president for sustainability at the firm, which includes a manager of socially responsible mutual funds.

The Nathan Cummings Foundation and Benedictine Sisters of Mount Angel, Oregon, jointly proposed a review of differences in pay between Goldman executives and rank-and-file employees at the New York company.

"We have concern both over the size of the top numbers and the potential disparity of pay," said Laura Shaffer, director of shareholder activities at the New York foundation, funded by the estate of the Sara Lee Corp. founder.

The deadline for submitting shareholder proposals to Goldman is next Monday. The company can't exclude a proposal from its proxy filing without consulting the Securities and Exchange Commission.

Write to Susanne Craig at


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