| DECEMBER 3, 2009
Goldman Takes Offensive
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.
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.
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
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
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
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
Write to Susanne Craig at
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