Goldman Sachs Group Inc shareholders should vote against the Wall Street bank's executive compensation proposal because the board has "failed to link pay with performance," proxy advisory firm Glass Lewis said in a report on Monday.
Shareholders should also vote against director James Johnson, Glass Lewis said, because of his position as chair of the compensation committee and prior roles at public companies that suffered financial issues and scandals.
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In its criticism of Goldman's pay packages, Glass Lewis said the company sets short-term compensation on a "purely discretionary basis" that is not in shareholders' best interest. The Federal Reserve has been pushing Wall Street banks to use more formulaic metrics in determining executive compensation, Reuters reported in March.
"We believe shareholders benefit when incentive awards are determined on the basis of metrics with pre-established goals and are thus demonstrably linked to the performance of the company, aligning the interests of management with those of shareholders," Glass Lewis said. "In this case, shareholders should be seriously concerned with the Company's failure to implement a formula-based short-term incentive plan with objective metrics and goals."
"The CEO (Goldman Chairman and CEO Lloyd Blankfein) was paid moderately more than the median CEO compensation of these peer companies. Overall, the Company paid more than its peers, but performed moderately worse than its peers," the advisory firm said.
Glass Lewis advises institutional investors how to cast votes during proxy season. Its report comes about a week before JPMorgan Chase & Co's closely watched and contentious shareholder vote on whether to split Jamie Dimon's roles of chairman and CEO. Goldman negotiated a deal with an activist union group to avoid having a similar proposal on its proxy.
Glass Lewis's analysis of Goldman's compensation noted a recent increase in director compensation, and what it characterized as a lack of disclosure about Goldman-managed funds that executives invest in alongside clients.
A group of senior Goldman executives received $128 million in distributions from those funds last year, up from $97 million in 2011, according to Goldman's proxy. In some cases their compensation for performance was much less than those distributions. For instance, Blankfein was awarded $21 million for his work in 2012, compared with $31.2 million he received from the internal funds.
Goldman employees can usually invest in the funds - which range from private-equity investments to real estate - once they are named partners of the firm. Glass Lewis said Goldman should better identify the funds that insiders have significant interests in, so that shareholders can judge whether those interests conflict with overall performance of the company.
In regards to Johnson, Glass Lewis cited several incidents that brought into question his corporate governance credentials, and his leadership of the compensation committee.
Johnson had been CEO and chairman of Fannie Mae in the 1990s, when the company failed to recognize $200 million in expenses. That boosted Fannie's profits in a way that allowed executives to meet targets for maximum bonus payouts, including $1.9 million that Johnson received, Glass Lewis said.
Johnson also participated in Countrywide Financial's "VIP" mortgage program that gave favorable loan terms to Washington insiders, and was a director of two companies whose CEOs illegally backdated stock options, Glass Lewis said.
"We believe shareholders would be better served by a director above reproach who will not subject the company to further criticism," Glass Lewis concluded.
A Goldman Sachs spokesman declined to comment.
Johnson could not be reached for comment.