Restoring Rationality in Executive Compensation
In mid-2009, as tens of millions of American families were struggling with unemployment, housing foreclosures, unaffordable healthcare, and lines at food pantries, Goldman Sachs - the nation’s leading investment bank - announced that record-breaking profits had returned and with them their past compensation levels. Reports estimated that upwards of $20 billion would be set aside for compensation of the company’s 33,000 employees - an historic average of over $600,000 per person.
Spiraling executive compensation has long been a concern of faith-based and socially responsible investors and, more recently, of major institutional investors such as state pensions and large investment funds. The major banks and Wall Street firms frequently head the list of super-size payouts, with top executives regularly taking home more than $30- , $40- or even $60 million a year - often regardless of their firm’s own fiscal performance.
MMA Praxis Mutual Funds joined The Ethical Funds Company of Canada in filing a first-of-its-kind resolution at Goldman Sachs in December 2009, citing both moral and fiduciary concerns for such a massive payout amidst the greatest economic crisis since the Great Depression. Three other compensation-related resolutions were filed by shareholders and public statements of outrage included President Obama, Treasury Secretary Geithner and members of Congress.
MMA Praxis’ shareholder proposal asked Goldman Sachs to create an independent panel on executive compensation to evaluate its compensation practices in the context of industry trends, reputational concerns and fresh understandings of performance. Given that the United States government had to salvage the entire American financial system with public funds, shareholders believe that calculating and attributing honest, company-related performance in 2009 is nearly impossible. In addition, it is morally indefensible to reap such rewards when most of the nation still struggles in a deep recession that Goldman Sachs and other financial institutions played an admitted role in creating.
Goldman Sachs, increasingly under pressure from many sides, agreed to engage in dialogue with shareholders over their concerns and made senior executives available to meet twice with sponsors of this resolution.
In late January 2010, Goldman Sachs announced the company’s bonus pool would be fixed at $16.2 billion, down 20 percent from their 2007 level and far below earlier projections. The company dramatically expanded public disclosure of its revised “Pay for Performance Principles” demonstrating how tougher compensation practices would now protect against excessive risk-taking and reward long-term performance. The Board also agreed to voluntarily implement a shareholder advisory vote on compensation principles and executive compensation. And, on February 5, the company announced that CEO Lloyd Blankfein would receive a $9 million bonus for 2009 - far below his 2007 take of $68 million and less than half the payments made to other executives of leading banks, all far less profitable than Goldman Sachs.
Recognizing the significant changes implemented by the company, a commitment to ongoing dialogue on compensation issues with shareholders, and the restraint the company showed in restricting compensation levels for 2009, MMA Praxis, the Ethical Funds Company and other co-filers agreed to withdrawal their resolution from the 2010 ballot. Time will be provided at the company’s annual meeting to address continuing concerns on compensation.
MMA Praxis and other concerned shareholders continue, however, to believe that much more must be done to address the systemic issues related to skyrocketing executive compensation - particularly once the nation emerges from the current recession. The need for independent oversight and fresh perspectives on compensation will remain a focus for shareholder advocates in the coming year with plans to raise these issues with a much broader range of financial institutions. There is a commitment to ensure that 2010 will not mark a return to “business as usual” on Wall Street with all its attendant risks.
The shareholder proposal was submitted to Goldman Sachs in November 2009 by Ethical Funds and co-filed by MMA Praxis Mutual Funds, Mennonite Education Agency, Congregation of the Sisters of St. Joseph of Brighton, and Sisters of Notre Dame de Namour Boston.
