Goldman Sachs Bows to Shareholder Challenge over Cash Bonuses for Senior Executives

Much public and political attention has recently been paid to the compensation packages that include large cash bonus payouts, most notably to certain executives of the financial corporations that received government assistance in the form of the Troubled Asset Relief Program (TARP). The outrage centers on practices where cash bonuses are paid for poor performance or for short-term performance that may not be sustained in ensuing years.

The Pension Boards, for many years, through our participation in the Interfaith Center on Corporate Social Responsibility (ICCR) and through our proxy voting standards, has effectively communicated with corporate management our principles regarding appropriate compensation practices.

Recently, a coalition of ICCR shareholders challenged Goldman Sachs as it prepared to pay large cash bonuses after having received TARP money during the financial crisis. Even though Goldman Sachs had repaid the government for all of the funds it had received, management agreed to not pay cash bonuses to senior executives. Instead, Goldman will compensate senior executives with long-term stock or, as it is also known, “shares at risk,” which is a form of restricted stock that cannot be sold for five years and which includes a clawback provision in case their businesses sour in the following years. A clawback provision is a policy for recouping executive performance-based bonuses, awards and or severance agreements that were made to senior executives based on having met or exceeded specific performance targets that are followed by target shortfalls in following years or in cases where past earnings are restated negatively.

Goldman’s about face correlates well with the Pension Boards’ proxy voting principles. Appropriate compensation should align management compensation with shareholders’ goals. Rewards should correspond to strong, sustainable performance over a meaningful time horizon. Rewards for short-term profits are not a way to stimulate sustainable performance. This is why we support clawback policies. We also support shareholder proposals that ask directors to adopt a policy that a majority of future equity compensation grants to senior executives be shares of stock that require the achievement of performance goals as a prerequisite to vesting. Severance agreements should be structured in a way that does not promote executives to act without concern for corporations’ future. Excessive “golden parachutes” are discouraged.

The Pension Boards continues to be actively promoting good corporate governance and reasonable pay practices on behalf of its participants. We work to contribute to the sustainable performance of invested assets. To learn more about our Proxy Voting Guidelines, click here.

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