Goldman's God Problem on Executive Pay
Politics / Banking Stocks Mar 19, 2012 - 01:04 AM GMTBy: EconMatters
In addition to suffering a one-day $2 billion loss in market value on March 12 bestowed upon by the Goldman Letter at New York Times on March 12 , Goldman also has to deal with God problem regarding executive compensation packages as well.
According to Reuters, in the past two years, a group of religious institutions that hold Goldman shares, including the Sisters of St. Francis of Philadelphia, has been successful in getting its proposal requiring Goldman to conduct an independent examination of whether Goldman's executive pay levels were appropriate taken into regular shareholders' meetings.
However, this year, for the first time, the U.S. SEC (Securities and Exchange Commission) sided with Goldman, which argued it had already complied with the request. The SEC's letter of rejection came out just one day after Gregg Smith's Goldman Letter appeared on the Times.
From Reuters,
The SEC sided with Goldman this year because it felt the company had "substantially implemented" the proposal, an SEC spokesman said. "If the company's actions effectively moot the proposal, then we permit exclusion."
In its January 11 letter to the SEC, Goldman described a number of processes that the firm has in place that it says address the religious group's concerns.
For example, the company has an independent committee that reviews executive compensation packages, and it discloses the compensation principles in proxy reports to shareholders, according to the letter.
While it is true that many Wall Street big banks, including Goldman, had to endure pay cuts after the financial crisis partly in response to backlashes stemming form lavish paydays on its executives. Nonetheless, since the paycut has lofty starting point to begin with, the current average pay is still much higher above the national norm,
For example, The average Goldman employee took home roughly $365,000 last year. Although that's already down 15% from $430,000 in 2010, it is still 539% of $67,690--the national annual average salary of "Business and Financial Operations Occupations" as of May 2010, the most recent data from Bureau of Labor Statistics. That's hard to justify even after taking into account of the variables such as an Ivy League degree, Quant wizard, etc.
In terms of executive compensation, Lloyd C. Blankfein, the chief executive of Goldman, earned $19 million in 2010 — roughly $5.4 million in cash, restricted stock valued at $12.6 million and other compensation. Before the near collapse of Wall Street in 2008, Blankfein made $68.5 million in 2007.
This year, Blankfein was granted $7 million in restricted stock, according to a regulatory filing last month, other forms of compensation like cash bonus have not been disclosed yet. The same $7 million award is also extended to Gary D. Cohn, the president, and David A. Viniar, the chief financial officer. The value is based on the company’s stock price as of Feb. 1.
Gregg Smith, who was merely one of 12,000 company vice-presidents, a low ranking employee, according to Goldman, was supposedly earning "no more than $750,000".
While it is refreshing to see SEC taking a contrarian view after Gregg Smith's Goldman exit letter, it looks like the government's regulatory sensors may have been blunted partly by the record $550 Million Goldman's settlement to SEC in 2010 on fraud charges related to Subprime Mortgage CDO, and possibly by the powerful Goldman revolving door between Goldman alumni and the U.S. Government.
Nevertheless, as Reuters quoted Charles Elson, director of the Weinberg Center for corporate governance at the University of Delaware,
"It's a [Goldman's] victory in a sense that it's kept off the proxy this year, but it doesn't make the issue go away."Wall Street pay has garnered a lot of attention since the financial crisis, and the pressure for more transparency and review is unlikely to relent, SEC's opinion notwithstanding.
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