Corporate Governance

Don?t Ask, Don?t Tell: Says Goldman Sachs to Shareholders, Part II

By Jennifer S. Taub

According to a January 12^th news story, Goldman rejected the proposal due to factual errors. One of those included that the Shareholders' text treated a paraphrasing of a decision by Judge Richard Posner as if it were a direct quote. Goldman also claimed that reference to a 'legislative attempt' to rein in executive pay was misleading because it seemed that the act referred to had passed.  Here is the related paragraph from the language submitted by the Shareholders with the proposed resolution:

'In 2008, Federal Appeals Court Judge Richard Posner stated that, 'executive pay is out of control and the marketplace cannot be trusted to rein it in. ' Legislative attempts to address executive compensation include the Excessive Pay Shareholder Approval Act, which mandates that no employee's compensation may exceed 100 times the average compensation paid to all employees of a given company unless at least 60% of shareholders vote to approve such compensation.'

 The Nathan Cummings foundation does not believe the language is inaccurate.  Laura Shaffer, Director of Shareholder Activities confirmed via email on January 13 that:

'[the Foundation does] not consider the proposal to contain ‘factual errors,'only a quotation that was improperly attributed to Posner himself rather than a NY Times columnist who was summarizing one of Posner's dissents.  We did not mischaracterize Posner's views.  We view the challenge as an attempt by Goldman to divert attention from the substantive issues about compensation raised in the proposal.'

One has to wonder why Goldman needs to seek help from the SEC. Instead of asking permission to block the proposal, management might instead just agree to make the corrections – it would be a simple editing change or, Goldman management could just submit the proposal on its own behalf.

Goldman's rejection of the Shareholder resolution and decision to seek SEC protection seems at odds with a recent, decidedly pro-shareholder move. Back in December, Goldman management made a surprising announcement. The firm voluntarily agreed to permit at the May 2010 annual meeting 'an advisory vote on the firm's compensation principles and the compensation of its named executive officers.'   Goldman was required to include a 'say on pay' vote for the 2009 meeting because it was a TARP recipient. However, because Goldman paid back the TARP funds, this vote was not required. Somehow comfortable with giving the shareholders a 'say on pay,' it is curious why Goldman management is not so keen on explaining executive pay in a broader social context.

With Goldman expected to announce record bonuses the financial institution has attempted to blunt the anticipated criticism by shifting bonuses from cash to stock and by considering requiring certain employees to make mandatory charitable contributions.  But whatever the steps, providing a straightforward explanation of the compensation practices will not be one of them.

Full post as published by The Race to the Bottom on January 15, 2010 (boomark / email).