Tuesday, January 26, 2010

Goldman Sachs criticized for failing to rein in compensation

Investment banking giant Goldman Sachs has been accused of failing to address systemic issues relating to employee compensation raised in a shareholder proposal filed last year by Vancouver-based Ethical Funds and U.S. SRI fund company MMA Praxis.

Last week, Goldman announced that company compensation in 2009 was over $16 billion dollars, an average of US$500,000 per employee. That’s a 20% drop compared to 2007, and a step in the right direction, but clearly not enough, Ethical and MMA Praxis stated in a press release.

“Although Goldman Sachs has shown some restraint, it is not evidence of a long term, systemic change. We want to make sure that we do not return to business as usual on Wall Street," says Bob Walker, Vice President of Sustainability for Ethical Funds.

The shareholder proposal asked Goldman’s board to establish an Independent Executive Compensation Review Panel to review the company’s long-term compensation, including bonuses, and compare it against industry trends. “The review shall include an analysis of the trends in Executive Compensation at our company and the impact on our company’s reputation, employees, relations with investors, political leaders and the general public,” the proposal reads.

In today’s press release, Ethical and MMA Praxis note that “given that the U.S. government had to prop up the entire U.S. financial sector with public funds, shareholders are adamant that independent oversight is the key to fostering the kind of long term systemic change that can bring reason to compensation practices at the firm and on Wall Street, and in particular can ensure that excessive risk-taking, believed by many to be a major cause of the market meltdown, is not driven by compensation practices at Wall Street firms.”

The two firms concede that Goldman made “significant” changes to its compensation practices in December 2009, including adopting “say on pay” and reducing the bonus pool. “However, more fundamental issues remain unaddressed. In calling for some reflection and further justification for high levels of compensation so soon after being bailed out by US taxpayers, Ethical Funds and MMA Praxis echo concerns emerging from the Obama Administration and regulatory bodies in Washington.”

Ethical and MMA Praxis also accuse Goldman of trying to prevent shareholders from having a say on this issue at its 2010 Annual General Meeting. “Goldman Sachs has challenged the shareholder proposal at the Securities and Exchange Commission in an attempt to omit it from the proxy ballot and to stifle the compensation debate."

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