Tomorrow, Goldman execs will face down an angry group of shareholders, including four orders of Catholic nuns, who want answers on Goldman’s “excessive” executive pay and U.S. government probes into allegations of investor fraud and lying to Congress, probes launched after Goldman had secured tens of billions of dollars in government bailout aid. Goldman had turned itself into a commercial bank during the financial crisis to avail itself of Federal Reserve rescue programs.
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Goldman has already paid the largest fine ever assessed by the Securities and Exchange Commission, $550 million last year for misleading investors, a fine that came on the eve of the passage of the historic Dodd-Frank legislation enacted to curtail Wall Street abuses. (FOX Business will offer extensive coverage of tomorrow's meeting.)
Amidst the controversies, Goldman’s board committee has increased its 2011 annual pay for Goldman’s chief executive, Lloyd Blankfein, by $2 million, after his pay more than doubled last year, despite vowing in 2010 to tie executive compensation more tightly to the bank's financial performance, including profit drops. Goldman's profit plunged 37% last year.
Last year, Goldman's top five executives, including Blankfein and president Gary Cohn, 50, got $93 million in total compensation, including salary, bonuses and stock awards, according to its most recent proxy filed with the SEC.
On top of that compensation, Blankfein and eight other top executives also reaped $554.8 million in gains on investments they made last year in private funds that Goldman manages for them for free, according to its proxy filing. Goldman doesn't charges these executives any fees to manage their money, as it invests the executives' money using the firm's trading information.
Blankfein won $27.2 million in investment gains and Cohn, $20.2 million, on top of the $18.6 million each got in pay, Goldman's proxy filing indicates.
Sister Nora Nash, a soft-spoken nun with the Sisters of St Francis of Philadelphia, says the founding saint of her order would be "spinning in his grave" if St. Francis knew what the Goldman executives were paying themselves.
Sister Nora says she will be joining the four orders of nuns to publicly demand that Goldman approve a shareholder proposal that would force the firm to formally review and give shareholders more detail about its "excessive" pay deals every year.
The sisters are putting pressure on Goldman via their retiree funds’ ownership stakes in the bank.
Goldman’s pay “is totally outlandish because of the fact that we live a world where millions are going to bed hungry, they don’t know where their next meal will come from, especially in our inner cities and in the third world,” Sister Nora says.
But Goldman dismisses the sisters’ resolution as "a distraction" that "would entail an unjustified cost to our firm and would not provide shareholders with any meaningful information,” since it says shareholders can already get this information in its filings.
Overall, Goldman employees were paid $15.38 billion in salaries and bonuses, or 39.3% of its annual revenue, for 2010, a year that saw its revenues drop 13%.
Goldman joined other Wall Street banks in creating mortgage-backed investments that quickly turned sour, costing taxpayers billions of dollars in bailouts. Regulatory probes later found that Goldman had bet against investments it was touting to clients, reaping billions of dollars when the housing market collapsed.
Goldman’s Rich Pay
Blankfein received a hefty $18.6 million in compensation last year, more than double what he got in 2009, Goldman's proxy indicates. That included a $5.4 million cash bonus.
And Blankfein won a hefty $2 million pay raise for 2011 despite the fact that Goldman posted a 37% drop in profits, to $7.7 billion, and a 13% drop in revenue, to $39 billion, in 2010, its proxy notes.
The bump-up in base pay and bonus comes after Goldman Sachs vowed in 2010 to "tie bonuses of top executives more closely to the company's financial performance" in order "to deter risky bets." The firm has not disclosed why it did not assess a corresponding 38% or any other cut in compensation.
Blankfein, Cohn and other executives also profited mightily in the year Wall Street collapsed.
The bank had publicly told the world that Blankfein and other senior executives would keep their base pay down to $600,000 each in 2009 due to the collapse of Wall Street and subsequent taxpayer bailouts (a salary that actually turned out to be $650,000).
Goldman also announced that it would instead pay executives more in stock awards versus cash. Blankfein subsequently earned a whopping $40.9 million in 2008, largely because Goldman's stock recovered, according to the proxy. Cohn earned $40.3 million that year, the proxy says.
Goldman's top four executives earned $133.2 million in 2008, the proxy says.
That rich pay day was dwarfed by the record $67.9 million bonus Goldman Sachs paid Blankfein in 2007, a year when mortgage losses forced Morgan Stanley (NYSE:MS) and Bear Stearns Cos. to forgo year-end payouts.
Blankfein’s Cushy Goldman Fund
Nine executives, including Blankfein, the bank’s chief financial officer, its vice chairmen, general counsels and its head of compliance saw gains last year of $554.8 million on investments they made in funds Goldman manages for them for free. Goldman doesn't charge them any fees on these funds, though it charges its clients fees for investing in the same funds. Goldman spouses can invest for free, too.
Goldman's proxy indicates that on top of his $18.6 million in compensation, Blankfein reaped $27.2 million last year in investment gains in the fund that Goldman Sachs manages for him, which the firm calls an “employee fund."
Essentially, Blankfein and top executives don't have to pay any money to profit off of the bets made on their behalf by Goldman’s own merchant bankers, venture capitalists and other traders. Blankfein took a $1 million distribution out of this fund last year.
“It’s his money he’s invested in Goldman’s managed funds, we do not deduct fees from his fund distributions,” a Goldman spokesman says.
Such funds are common on Wall Street, though these cushy side deals have raised the ire of corporate governance experts.
On top of his $18.6 million in compensation, Cohn also earned $20.2 million off his investments in his own “employee fund,” and took a $644,000 distribution out of this fund last year, the proxy indicates.
Goldman’s board of directors, its spouses and its favored nonprofits have also invested in these funds, Goldman says. The banks also doesn’t charge them management fees.
Blankfein’s Rich Perks
Blankfein also gets more than $332,900 in other perks, including $185,000 Goldman spends annually on his personal car and driver; $62,020 for medical and dental coverage; $57,000 Goldman spends annually on his tax counseling services; as well as $129,000 Goldman spends on his security services, the proxy indicates.
Blankfein is the firm’s top executive shareholder, with 3.3 million shares.For his part, Cohn gets more than $210,000 in perks, which include $68,000 Goldman spends annually on his personal car and driver; $62,020 for medical and dental coverage; $60,900 for tax counseling services; and $73,000 Goldman spends on his security services, the proxy says.
The bank says it needs to award rich pay in order to lure in and retain its talent.
Sister Nora isn’t having that.
Rich executive pay “didn't work for BP," the sister has said, alluding to BP’s Gulf oil spill last year. Sister Nora has noted that such executive pay doesn't prevent major disasters.
Senators Refer to Justice Dept., SEC
Senators Carl Levin (D-Mich.) and Tom Coburn (R-Okla.) this week have formally referred to the Department of Justice and the Securities and Exchange Commission a request that federal prosecutors and market regulators explore possible further charges against Goldman and its top executives.
The senators have referred to U.S. officials its investigative report based on a two-year probe, which concludes Goldman had misled clients about its mortgage-backed securities.
(See Emac's Bottom Line columns: "Goldman Sachs Accused of Misleading Congress, Clients" and "DOJ, SEC Asked to Probe Whether Goldman Lied").
Specifically, the report says that Goldman touted these securities to clients while failing to disclose its “massive short” against the housing market, where Goldman was betting housing would collapse.
The Senators also want the Justice Dept. to investigate possible perjury charges against Blankfein and other executives for allegedly lying to Congress.
In testimony before Congress in April of last year, Blankfein said: “We didn’t have a massive short against the housing market and we certainly did not bet against our clients.”
Goldman denies the allegations, and says its executives' testimony was “truthful and accurate.”
The Sisters Demand Answers
Goldman’s board unanimously supports the new shareholder say on pay, where shareholders would vote to approve executive compensation every year.
However the vote is merely advisory, it is not binding on Goldman to make any pay changes. And Goldman’s board unanimously rejected the nuns’ shareholder proposal demanding a board-level review of how Goldman’s “excessive” pay hurts workers and shareholders, and whether that pay should be modified.
Sisters from the orders of Sisters of Saint Joseph of Boston, Sisters of Notre Dame de Namur, the Sisters of St. Francis of Philadelphia and the Benedictine Sister of Mt. Angel plan to attend Goldman’s annual meeting tomorrow.
Despite the board’s rejection, the sisters plan to fight for the shareholder proposal demanding that Goldman’s board compensation committee immediately initiate a review of Goldman’s senior executive compensation policies, and make that report available for review by October 1.
And the nuns want an analysis explaining why executives continue to get high pay despite drops in Goldman’s profits.
To back up their case, the nuns cite a review by former pay czar Ken Feinberg, who said that Goldman and its peers collectively overpaid their top executives by $1.6 billion during the financial crisis.
The sisters also cite a 2008 Forbes article on Wall Street pay, which quoted a corporate governance expert at Harvard Law who said that Wall Street compensation “will prove to be quite costly -- excessively costly -- to shareholders.”